The Moral-Hazard Problem Occurs When

question 24

Multiple Choice

The moral-hazard problem occurs when:

• A) a consumer of insurance changes his or her behavior in such a way as to decrease the probability of a payoff.
• B) a consumer of insurance changes his or her behavior in such a way as to increase the probability of a payoff.
• C) insurance companies change their behaviors in such a way as to increase the probabilities of a payoff.
• D) insurance companies change their behaviors in such a way as to decrease the probabilities of a payoff.
• E) none of the above.

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Definitions:

Perceived

Regarded in a certain way; seen or understood from an individual's viewpoint.

Likable

Pertains to possessing qualities that attract liking or affection from others.

Knowledgeable

Being well-informed, educated, or competent in a particular area or subject.

Phenomenon

A fact, occurrence, or circumstance observed or observable, often remarkable or impressive in nature.