Moral hazard

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Moral hazard is the encouragement to take risky or reckless action that arises when your losses are insured by someone else. Because people know they are protected, the insurer may get more claims than it bargained for. It is one of two main sorts of market failure often associated with the provision of insurance. The other is adverse selection.[1]

References

  1. Economics A-Z, "moral hazard". The Economist.