A(n) _________ problem occurs when a person or institution does not have to bear the full consequence of its behavior and therefore assumes more risk than it otherwise would.

Question

Quizplus · Accepted Answer

Moral hazard refers to a situation where a person or institution takes on increased risk because they are not fully responsible for the consequences of their actions. This often happens when there is some kind of safety net or insurance in place that will cover some or all of the potential losses. As a result, the person or institution may take risks that they would otherwise avoid. This is especially common in financial markets, where institutions may take on excessive risk because they know that they will be bailed out if things go wrong.

A(n) _________ Problem Occurs When a Person or Institution Does