Moral hazard is:
A)the tendency for people to behave in a riskier way or to renege on contracts when they do not face the full consequences of their actions.
B)when people engage in behavior that is considered highly desirable by the person who bears the cost of the behavior.
C)when buyers and sellers have different information about the quality of a good or the riskiness of a situation.
D)when buyers and sellers with the same information about the quality of a good or the riskiness of a situation agree to a somewhat shady deal.

Question

Quizplus · Accepted Answer

Moral hazard refers to the risk that individuals or organizations may behave differently once they have received some form of protection or insurance against risk. Specifically, they may engage in more risky behavior since they do not bear the full cost of any negative consequences that may result. This phenomenon can arise in a variety of contexts, such as when banks take excessive risks after being bailed out by the government, or when individuals engage in riskier behavior once they have health insurance.

Moral Hazard Is