moral hazard
- The risk that an insurance company could face a loss due to the actions or behavior of a policyholder. This risk is influenced by the policyholder's personal characteristics or situation
- The increased probability of investors taking on more risk because they are aware that any potential losses from these risks will be compensated by another entity, such as a governmental body
- The insurance company decided to raise the premium due to the moral hazard associated with insuring a building located in a high-crime area.
- During an economic downturn, some investors may act on moral hazard, knowing that the losses will be absorbed by the government.
- Moral hazard can encourage irresponsible behavior, as individuals or entities know that they won't have to bear the full cost of their actions.
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