If Sally drives less carefully after buying auto insurance,she illustrates
A) adverse selection.
B) negative selection.
C) screening risk.
D) moral hazard.
E) lemon hazard.

Question

Quizplus · Accepted Answer

Sally's behavior after buying auto insurance suggests she is more likely to take risks while driving because she knows she is protected by insurance. This is an example of moral hazard, which is the increased risk-taking behavior that can occur after insurance protection is obtained.

If Sally Drives Less Carefully After Buying Auto Insurance,she Illustrates