One of the mysteries of the English language finally explained.
Lack of incentive to guard against risk where one is protected from its consequences, e.g. by insurance.
- ‘The recent history of the credit system can be thought of as the evolution of increasingly successful methods of reducing the risk premium caused by hidden information and moral hazard.’
- ‘For example, if moral hazard is associated with deposit insurance, the greater risks banks take may demand stronger preventive techniques.’
- ‘He is creating moral hazard by making investors think that investment risks are minimized simply by skimming an independent stock research report.’
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