When hurricanes approach, Dave never prepares his house, stating "I'm insured." Dave's behavior is an example of

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Dave's behavior is an example of moral hazard, which occurs when people take more risks or do not take precautions because they know that they are protected by insurance or some other form of compensation. In this case, Dave's lack of preparation is a result of his confidence in his insurance coverage, which creates a moral hazard problem for both Dave and his insurer. If Dave's house is damaged or destroyed by a hurricane, his insurer may have to pay a higher claim because of his lack of preparation. This, in turn, may result in higher premiums for other policyholders.

When Hurricanes Approach, Dave Never Prepares His House, Stating "I'm