Q449
Which of the below can be attributed to moral hazard?
A.
Increased risky behaviour following the purchase of insurance
AnswerB.
Increased risky behaviour prior to the purchase of insurance
C.
Decreased risky behaviour following the purchase of insurance
D.
Engaging in criminal acts post being insured
Answer: Option A
Solution
Answer: Option A
Solution:
Increased risky behaviour following the purchase of insurance can be attributed to moral hazard. Moral hazard is a situation in which one party gets involved in a risky event knowing that it is protected against the risk and the other party will incur the cost. It arises when both the parties have incomplete information about each other.