When one party to a transaction takes actions that a trading partner cannot observe but that nonetheless affect that trading partner,this is called:
A) signaling.
B) screening.
C) moral hazard.
D) adverse selection.

Question

Quizplus · Accepted Answer

Moral hazard occurs when one party to a transaction takes actions that the other party cannot observe and that affect the latter. This typically happens after a transaction has occurred, where the party shielded from risk behaves differently than they would if they were fully exposed to the risk.

When One Party to a Transaction Takes Actions That a Trading