Suppose a person with automobile collision insurance is more likely to try to drive on an icy road in the middle of winter than that person would be if he or she didn't have automobile collision. This is an example of
A)adverse selection.
B)moral hazard.
C)the free-rider effect.
D)asymmetric information before exchange.

Question

Quizplus · Accepted Answer

This scenario describes moral hazard, where the existence of insurance leads to riskier behavior, as the person may feel more protected against potential damages or losses. Adverse selection is when one party has more information or a higher risk level than the other party before making an agreement. The free-rider effect is when someone benefits from a good or service without paying for it, and asymmetric information before exchange is when one party has more information than the other party before making an agreement.

Suppose a Person with Automobile Collision Insurance Is More Likely