The term moral hazard refers to:

Question

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Moral hazard refers to the idea that individuals or entities will change their behavior if they are not fully exposed to the consequences of their actions. This can lead to increased risk-taking or reckless behavior if the individual or entity knows that they will not bear the full cost of any negative outcomes. Examples of moral hazard include insurance, where individuals may engage in riskier behavior knowing that their losses will be covered, or bailouts for financial institutions, where companies may take on more risk knowing that they will be rescued if they fail. Choices A, B, and C refer to different types of investment problems and do not fully capture the concept of moral hazard.

The Term Moral Hazard Refers To