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MENTAL MODEL · M4667

Moral Hazard

Moral Hazard
BusinessHigh supportMicroeconomics
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Version 1.0.0 · Updated 2026-07-28

CORE DEFINITION

In economics, moral hazard is a specific situation where an economic participant does not bear the full cost of the risk they create, which creates an incentive for them to increase their exposure to risk. For example, when someone obtains insurance from an insurance company, the cost of their behavior is partially or fully borne by the insurance company. At this point, the insurance company faces moral hazard. If the person defaults and causes a loss, they do not bear full responsibility, and the insurance company often bears most of the consequences. At this point, the person lacks the incentive not to default, so only their moral self-discipline can prevent it. They can change their behavior at any time to cause losses to the insurance company, and the insurance company bears the risk of loss.

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In economics, moral hazard is a specific situation where an economic participant does not bear the full cost of the risk they create, which creates an incentive for them to increase their exposure to risk. For example, when someone obtains insurance from an insurance company, the cost of their behavior is partially or fully borne by the insurance company. At this point, the insurance company faces moral hazard. If the person defaults and causes a loss, they do not bear full responsibility, and the insurance company often bears most of the consequences.

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When one party is protected or insured and does not bear the full consequences of risk, they tend to engage in more reckless or lax behavior, which is moral hazard.

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Source support: Explicit

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    zh.wikipedia.orghttps://zh.wikipedia.org/wiki/%E9%81%93%E5%BE%B7%E9%A3%8E%E9%99%A9ZH · Explicit
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