Which of the below can be attributed to moral hazard?
A
Increased risky behaviour following the purchase of insurance
B
Increased risky behaviour prior to the purchase of insurance
C
Decreased risky behaviour following the purchase of insurance
D
Engaging in criminal acts post being insured
Correct Answer: Increased risky behaviour following the purchase of insurance
Increased risky behaviour following the purchase of insurance can be attributed to moral hazard. Moral hazard is a situation in which one party gets involved in a risky event knowing that it is protected against the risk and the other party will incur the cost. It arises when both the parties have incomplete information about each other.