Moral Hazard

question 20

Multiple Choice

Moral hazard:

• A) is about the unobserved characteristics of people.
• B) is about the unobserved actions of people.
• C) occurs before the parties have entered into an agreement.
• D) None of these statements is true.

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Definitions:

Conditional Probabilities

The likelihood of an event or outcome occurring, given that another event has already occurred.

Optimistic Decision Maker

A decision-making style characterized by the tendency to expect the most favorable outcome.

Maximax Criterion

A decision-making rule used in scenarios of uncertainty, selecting the option with the maximum possible payoff regardless of the risks involved.

Uncertainty

A situation where the outcomes or conditions of an event, effect, or decision are not known or predictable.