Moral hazard describes a situation in which:
A)the buyers of insurance consistently make the wrong decisions and buy too much insurance.
B)insurance companies are unable to sell the amount of insurance they feel is optimal.
C)insurance companies find most of their customers coming from low risk groups.
D)the buyers of insurance behave in ways that raise the probability of the unfavorable outcome.

Question

Quizplus · Accepted Answer

Moral hazard occurs when the buyer of insurance engages in risky behavior, knowing that the insurance will cover any losses. This behavior raises the probability of an unfavorable outcome and therefore presents a risk to the insurance company.

Moral Hazard Describes a Situation in Which