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 illustrates the moral hazard problem, which occurs when a person takes more risks because they are protected from the consequences, in this case, by having AFLAC supplemental health insurance.

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