Which of the following best explains 'moral hazard'?
A) Risks not subject to systematic assessment.
B) Risks that both contractual parties will primarily pursue their own interest.
C) Risk that one party will pursue their own interest.
D) Risk of a breach of legislation.

Question

Which of the following best explains 'moral hazard'? 
A) Risks not subject to systematic assessment. 
B) Risks that both contractual parties will primarily pursue their own interest. 
C) Risk that one party will pursue their own interest. 
D) Risk of a breach of legislation.

Quizplus · Accepted Answer

Moral hazard refers to the risk that one party to a contract will engage in risky behavior because they know that the other party will bear the costs of that behavior.

Which of the Following Best Explains 'Moral Hazard