As it applies to insurance, the moral hazard problem is the tendency for
A) those most likely to collect on insurance to buy it.
B) those who buy insurance to take less precaution in avoiding the insured risk.
C) sellers to price discriminate.
D) sellers to restrict output and charge high prices.

Question

Quizplus · Accepted Answer

The moral hazard problem in insurance refers to the risk that policyholders may take less precaution in avoiding the insured risk since they know they are protected by insurance. This can lead to an increase in claims and higher premiums for all policyholders. Therefore, option B is the best choice. Options A, C, and D are unrelated to the moral hazard problem in insurance.

As It Applies to Insurance, the Moral Hazard Problem Is