Moral Hazard Is More Likely to Arise When

question 278

Multiple Choice

Moral hazard is more likely to arise when

• A) one side of an economic relationship cannot observe the behavior of those on the other side.
• B) adverse selection is present.
• C) insurance policies have high deductibles.
• D) people are uninsured.

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Definitions:

Cost-Benefit Analysis

A comparison of the costs and benefits of each potential course of action.

Lack-Of-Participation Error

Failure to involve in a decision the persons whose support is needed to implement it.

Classical Decision Model

A theory suggesting decision-making is a rational process, where choices are made logically and with full information.

Complete Information

A situation where all participants have access to all relevant information needed to make informed decisions without any hidden or missing data.