Moral Hazard Occurs When

question 21

Multiple Choice

Moral hazard occurs when:

• A) the principal purposely misleads the agent to obtain higher profits.
• B) limited information causes uncertainty for the agent.
• C) an agent pursues his own interests to the detriment of the principal.
• D) self-selection is not possible
• E) an agent has incomplete information when acting on behalf of the principal.

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Definitions:

Psychoanalytic Theory

A theory of psychology that emphasizes unconscious processes and childhood experiences in shaping behavior and personality.

Motivation

The process that initiates, guides, and maintains goal-oriented behaviors.

Pleasure Principle

A psychoanalytic concept suggesting that people seek pleasure and avoid pain, guiding much of human behavior and decision-making.

Superego

In psychoanalytic theory, the part of the personality that acts as a moral center, enforcing societal norms and values.