Moral hazard refers to the tendency of market participants to engage in riskier behavior if they think that they will not have to bear all of the costs of this behavior.

Question

Quizplus · Accepted Answer

Moral hazard occurs when one party in a transaction takes on more risk because they know that the other party will bear the cost of those risks, leading to potentially irresponsible or riskier behavior than if they were fully exposed to the consequences of their actions.

Moral Hazard Refers to the Tendency of Market Participants to Engage