What does moral hazard mean?

Definitions for moral hazard
moral haz·ard

This dictionary definitions page includes all the possible meanings, example usage and translations of the word moral hazard.

Princeton's WordNet

  1. moral hazardnoun

    (economics) the lack of any incentive to guard against a risk when you are protected against it (as by insurance)

    "insurance companies are exposed to a moral hazard if the insured party is not honest"

Wiktionary

  1. moral hazardnoun

    The prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk.

Wikipedia

  1. Moral hazard

    In economics, a moral hazard is a situation where an economic actor has an incentive to increase its exposure to risk because it does not bear the full costs of that risk. For example, when a corporation is insured, it may take on higher risk knowing that its insurance will pay the associated costs. A moral hazard may occur where the actions of the risk-taking party change to the detriment of the cost-bearing party after a financial transaction has taken place. Moral hazard can occur under a type of information asymmetry where the risk-taking party to a transaction knows more about its intentions than the party paying the consequences of the risk and has a tendency or incentive to take on too much risk from the perspective of the party with less information. One example is a principal–agent problem, where one party, called an agent, acts on behalf of another party, called the principal. If the agent has more information about his or her actions or intentions than the principal then the agent may have an incentive to act too riskily (from the viewpoint of the principal) if the interests of the agent and the principal are not aligned.

ChatGPT

  1. moral hazard

    Moral hazard is a term used in economics, finance and insurance to describe a situation where one party is involved in an agreement and has the opportunity to take risks because they know that the consequences of those risks will not affect them directly but will be borne by the other party to the agreement. This typically happens when the party taking risks has more information or knowledge than the party affected by the risk. It can lead to inefficient outcomes as the risk-taking party may engage in behavior that is undesirable to the other party.

Wikidata

  1. Moral hazard

    In economic theory, a moral hazard is a situation where a party will have a tendency to take risks because the costs that could incur will not be felt by the party taking the risk. In other words, it is a tendency to be more willing to take a risk, knowing that the potential costs or burdens of taking such risk will be borne, in whole or in part, by others. A moral hazard may occur where the actions of one party may change to the detriment of another after a financial transaction has taken place. Moral hazard arises because an individual or institution does not take the full consequences and responsibilities of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to hold some responsibility for the consequences of those actions. Economists explain moral hazard as a special case of information asymmetry, a situation in which one party in a transaction has more information than another. In particular, moral hazard may occur if a party that is insulated from risk has more information about its actions and intentions than the party paying for the negative consequences of the risk. More broadly, moral hazard occurs when the party with more information about its actions or intentions has a tendency or incentive to behave inappropriately from the perspective of the party with less information.

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Numerology

  1. Chaldean Numerology

    The numerical value of moral hazard in Chaldean Numerology is: 1

  2. Pythagorean Numerology

    The numerical value of moral hazard in Pythagorean Numerology is: 9

Examples of moral hazard in a Sentence

  1. Firas Maksad:

    There's a moral hazard for the Iranians going about business as if the Americans never left.

  2. Lynette Khalfani-Cox:

    I do think there’s a little bit of moral hazard here.

  3. Oliver Barron:

    Avoiding a crisis and the spread of systemic risk is always the number one priority of the government, this means that some companies that shouldn't be bailed out will be, perpetuating the current moral hazard and leading to wasted capital.

  4. Dewi Fortuna Anwar:

    We have to find ways to resettle them as soon as possible without creating a new moral hazard, if migrants start thinking of Indonesia as a transit point or as having a higher chance of getting resettled, that would create another problem that we have to prevent.

  5. Oliver Barron:

    This means that some companies that shouldn't be bailed out will be, perpetuating the current moral hazard and leading to wasted capital.


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"moral hazard." Definitions.net. STANDS4 LLC, 2024. Web. 28 Mar. 2024. <https://www.definitions.net/definition/moral+hazard>.

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