(Solved):The Cole family owns a house with an alarm system that they activate whenever they leave the house. Recently, the Cole family purchased homeowner’s insurance that fully covers all losses. After pur… View Answer…

 

Question

The Cole family owns a house with an alarm system that they activate whenever they leave the house. Recently, the Cole family purchased homeowner’s insurance that fully covers all losses. After purchasing the insurance, family members haven’t been using the alarm system. For the insurance company, this presents:

A. A problem with adverse selection

B. A lemons problem

C. A problem with asymmetric information

D. A problem with moral hazard

 

EXPERT ANSWER

Answer: D — A

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