Suppose that Harold buys collision insurance for his car and then drives it recklessly. This is an example of

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Harold's reckless driving after buying collision insurance is an example of moral hazard. Moral hazard occurs when an individual takes more risks or behaves irresponsibly because they are protected by insurance. In this case, Harold may feel more inclined to drive recklessly because he knows he is covered by insurance if a collision occurs.

Suppose That Harold Buys Collision Insurance for His Car and Then