In the case of an insurance policy,________ occurs when the existence of insurance encourages the insured party to take risks that increase the likelihood of an insurance payoff; ________ occurs when those most likely to get large insurance payoffs are the ones who want to purchase insurance the most.

Question

Quizplus · Accepted Answer

Moral hazard occurs when the existence of insurance encourages the insured party to take risks that increase the likelihood of an insurance payoff. Adverse selection occurs when those most likely to get large insurance payoffs are the ones who want to purchase insurance the most. Therefore, the correct option is C, where moral hazard is the first occurrence, and adverse selection is the second occurrence.

In the Case of an Insurance Policy,________ Occurs When the Existence