Which of the following is an example of moral hazard?
A) a person who drives more recklessly after obtaining automobile insurance
B) a person who engages in unrisky behavior after enrolling in his firm's health insurance plan
C) a driver who reduces his level of insurance coverage after his premiums rise
D) all of the above

Question

Quizplus · Accepted Answer

Moral hazard refers to the tendency of people to take more risks or engage in less responsible behavior when they are protected against losses. In this case, the person with automobile insurance is taking more risks because they believe the insurance will cover any damages or losses. Options B and C are not examples of moral hazard as they describe behavior that is responsible (engaging in unrisky behavior with health insurance) or risk-averse (reducing insurance coverage to reduce costs).

Which of the Following Is an Example of Moral Hazard