(Solved):” People buy insurance to protect themselves from moral hazard.” True or false? Explain. View Answer…

 

Question

” People buy insurance to protect themselves from moral hazard.” True or false? Explain.

 

EXPERT ANSWER

The statement is incorrect.

People buy insurance because they dislike risk. Specifically, when individuals are risk averse, they would prefer certain outcome over a lottery that provides the same expected outcome. Therefore, individuals are willing to purchase insurance to remove uncertainty.

Moral hazard is a problem that could arise after insurance has been purchased. The insured would take

Scroll to top