In a television advertisement for AFLAC supplemental health insurance, an ice skater says to his skating partner, "Do you want to try a triple jump?" She responds, "Why not, I have AFLAC." This
Response illustrates the
A) principal-agent problem.
B) adverse selection problem.
C) moral hazard problem.
D) free-rider problem.

Question

Quizplus · Accepted Answer

The response of the ice skater's partner indicates that she is willing to take a riskier action (trying a triple jump) because she feels protected by her AFLAC supplemental health insurance. This is an example of moral hazard, where individuals may take greater risks or be more careless in their behavior when they are insured because they feel protected from the consequences of their actions.

In a Television Advertisement for AFLAC Supplemental Health Insurance, an Ice