Which of the Following Is Not an Example of Moral

question 80

Multiple Choice

Which of the following is not an example of moral hazard?

• A)Investment banks use 40-1 leverage, knowing that if the market collapses, the government will come to the rescue.
• B)Domestic automobile companies fail to design high-quality fuel-efficient cars, hoping that the government will save them if oil prices skyrocket.
• C)A backcountry skier takes an excessively dangerous run, knowing that local rescue crews will come to his aid if he gets in an accident.
• D)Insurance companies stopped offering insurance policies in New Orleans after a major hurricane, knowing the government will offer subsidies to draw people back.

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Definitions:

Isolate Purchases

involves separating specific buying transactions for closer analysis or for special treatment in accounting or analysis.

Mental Accounting

A concept within behavioral economics that refers to the way individuals categorize, separate, and evaluate financial activities, often leading to irrational decision-making.

Irrational Decisions

Choices made contrary to or without consideration of the available evidence or logic.

Anchoring

A cognitive bias where an individual relies too heavily on an initial piece of information (the "anchor") to make subsequent judgments.