Peter has bought a life insurance policy that pays his family $2 million if he dies. After buying the policy, he does not hesitate to enjoy his favorite hobby of skydiving. Peter's behavior is an example of

Question

BlackTom AI · Accepted Answer

Buying insurance can change a policyholder’s behavior: this situation exemplifies moral hazard.

Relevant concepts: moral hazard occurs when an individual alters their behavior after obtaining insurance or protection because they no longer bear the full consequences of risky actions. Adverse selection is a pre-contract problem where those with higher risk are more likely to buy insurance. Signaling is an action by the informed party to reveal private information. Screening is an insurer’s strategy to induce revelation of that private information.

Step-by-step reasoning:
1. Peter purchases a life insurance policy that pays $2 million to his family if he dies. That contract transfers financial consequences of death from Peter’s family (or Peter’s estate) to the insurer.
2. After purchasing the policy, Peter immediately resumes or intensifies a risky hobby—skydiving. This change in behavior happens after the contract is in place.
3. Because the insurance reduces the private cost of risky behavior (the insured payout in case of death), Peter faces weaker incentives to avoid risk than he did before purchasing the policy.
4. This post-contract change in risk-taking due to reduced personal exposure is the hallmark of moral hazard.

Why the correct answer is moral hazard: the defining feature here is the timing and cause—behavior changes after insurance is purchased because the insured no longer bears full losses. That is exactly moral hazard.

Why other options are incorrect:
- Adverse selection: would apply if high-risk people were more likely to buy insurance before contracts are written; it concerns hidden types prior to purchase, not behavior change after purchase.
- Signaling: involves a knowledgeable party taking actions to credibly convey private information to others; Peter’s skydiving is not intended to communicate type.
- Screening: refers to actions by the insurer to elicit information from applicants; it is not what Peter is doing.

Therefore the correct answer is moral hazard, matching the provided answer.

Peter has bought a life insurance policy that pays his family $2 million if he dies. After buying the policy, he does not hesitate to enjoy his favorite hobby of skydiving. Peter's behavior is an example of单项选择题

类似问题

The use of funds raised for unintended purposes, like cruises, is a problem of:

Debt contracts are still subject to ________ because borrowers may take on excessive risk.

One way to reduce the problem of moral hazard is

I always buy premium grade gas for my Chevrolet Malibu. But when I am on a vacation and I rent the same model from a rental company, I fill the tank with cheapest regular-grade gas. My behavior can be seen as an example of

Question at position 1 Although the FDIC was created to prevent bank failures, its existence encourages banks tohold too much capitaltake too much riskhold too many depositsopen too many branches

What is the term for a situation in which distorted incentives arise because an individual has private information about their own actions, but someone else bears the costs of a lack of care or effort?

更多留学生实用工具

智能学习助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单