Moral hazard means that insured customers exercise less care because they have less incentive to do so. Do you agree with this concept? Also, comment on the statement that we should anticipate moral hazard and protect ourselves against it.

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Gunner Mays

11 July, 23:32

Moral hazard means that insured customers exercise less care because they have less incentive to do so. Do you agree with this concept? Also, comment on the statement that we should anticipate moral hazard and protect ourselves against it.

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Madelyn Glass · Answer 1

Yes, moral hazard is an entirely valid concept. It's just the unfortunate reality of human interaction: when we know there is a benefit coming (I'm thinking social security in particular) we are less inclined to pay our own way. Knowing that the poor or lazy won't do this, and that any of your savings may be funneled to them through the government programs, can be difficult and economically frustrating.

401k programs are retirement plans made to self-spend. This is a way of protecting against moral hazard: it awards tax benefits based on how much money the individual raises, not just what the government is willing to give them. This creates incentive, and for many it can provide an antidote to the moral hazard.