Definition
- Moral hazard
- Moral hazard is the case when people engage in riskier behaviour with insurance than they would if they did not have insurance.
Example
Can you think of an example of moral hazard?
A driver whose policy pays for every dent stops taking care when parking in tight spaces, because the insurer, not the driver, now pays for the damage.
Test yourself
Can you name the two problems of asymmetric information in insurance?