Moral hazard refers to the risk that an agent may act in their own self-interest because they do not face the full consequences of their actions. This occurs when an agent has information that the principal does not have and can exploit this information for their own benefit.

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Moral Hazard

Question 65

Multiple Choice

Moral hazard:

A) is when the principle has too much authority over the agent.
B) is when the agent is motivated to pursue their own self-interest.
C) is when the principle behaves unethically.
D) is when the agent has the opportunity to unfairly influence the principle.

Correct Answer: