If a person drives less carefully after purchasing automobile insurance,
A) it is due to adverse selection.
B) moral hazard exists.
C) the person's insurance deductible must be large.
D) the insurance company must have perfect information.

Question

Quizplus · Accepted Answer

Moral hazard refers to the situation where a person behaves differently because they have insurance coverage. After purchasing automobile insurance, the person may engage in riskier behavior while driving because they know that any damages incurred will be covered by the insurance company. This increases the likelihood of accidents and claims, which can lead to higher premiums for everyone.

If a Person Drives Less Carefully After Purchasing Automobile Insurance