After Fred discovered he was seriously ill,he went and purchased health insurance without telling the insurance company about his illness.This is an example of moral hazard.

Question

Quizplus · Accepted Answer

This is an example of adverse selection, not moral hazard. Adverse selection occurs when one party in a transaction has more information than the other, particularly in insurance, where the risk is not equally known between the buyer and seller. Moral hazard, on the other hand, refers to a situation where one party takes more risks because they are protected from the consequences, typically after a transaction has occurred.

After Fred Discovered He Was Seriously Ill,he Went and Purchased