The Difference Between Adverse Selection and Moral Hazard Is That

question 71

Multiple Choice

The difference between adverse selection and moral hazard is that

• A)moral hazard happens at the time parties enter into a transaction; adverse selection occurs after the transaction takes place.
• B)adverse selection happens at the time parties enter into a transaction; moral hazard occurs after the transaction takes place.
• C)moral hazard is the motive that is behind one party entering into a transaction with another party.Adverse selection refers to the other party being harmed by the transaction.
• D)moral hazard refers to the likelihood that a transaction will lead one party to be better off at the expense of the other party to the transaction.Adverse selection refers to the consequences of the transaction after it has occurred.

Analyze the impact of practical standards on manager attitudes and commitment.

Identify potential negative outcomes of incentive systems based on meeting predetermined standards.

Recognize the importance and methods of setting standards, including benchmarking and time and motion studies.

Grasp the role and calculation of standard costs in production, including material and labor variances.

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Definitions:

Actual Behaviour

The observed actions or reactions of an individual in a given situation, as opposed to intended or theoretical behavior.

Theory of Reasoned Action

A psychological theory that explains an individual's behavior based on their intention to perform the behavior, which is influenced by their attitudes and subjective norms.

Predicting Behaviour

The process of forecasting individuals' future actions based on past and current behavior patterns, often used in psychology and marketing.

Original Fishbein Model

A psychological model developed by Martin Fishbein in the 1960s, used to predict behaviors based on an individual's attitudes towards the behavior and subjective norms.