The basic idea behind moral hazard is that ________.
A) some economic transactions impose an additional cost on society
B) some economic transactions give rise to an additional benefit to society
C) people tend to take more risks if they do not have to bear the costs of their behavior
D) people do not reveal their true preference for goods that are non-excludable in consumption

Question

Quizplus · Accepted Answer

Moral hazard refers to a situation in which a party takes higher risks or engages in riskier behavior because they are not fully responsible for the consequences of their actions. This can occur when one party has an asymmetrical information about the risks involved in a transaction or when they know that they will not bear the full cost of any negative outcomes that may result. In such situations, the party may be more likely to engage in risky behavior, leading to potential negative consequences for others involved.

The Basic Idea Behind Moral Hazard Is That ________