Moral hazard

Moral hazard is a concept that people will take risks if they have an incentive to do so. The idea is that people could ignore the moral consequences of their decisions. Instead, they will do what benefits them most. The concept of moral hazard comes from the insurance industry.

Most people understand the tradeoff between risk and return. If you take risks, it can follow. However you could be rewarded.

What happens if these compromises go away? If you, that you could take risks without consequences knew, would you take more risk? What happens when you use someone else, the consequences must be for you?

For many, the moral is the only thing that stops it. You know, you can get with the risks, but she do not believe that it is to do the right thing.

For example, you can get unlimited car insurance on your car rental. This creates a moral hazard. If you drive through the mountains, you can not worry about it struck up on rough roads or scratch it up in the thick brush. In other words, may be you inconsiderate. No problem is damage to the car, but it is someone problem.

Moral hazard says, the more feel isolated by risk, the more temptation you have it take you.

Moral hazard is also important for lenders. You can borrow money to buy a House. If you do not repay the loans, what happens?

In most cases, your credit card will suffer. It is more difficult for you to borrow, in the future and may need to pay higher interest rates. You also have difficulties or a body or insurance coverage. Your credit card which is (along with your morals, presumably) "Stick", which prevents that you hunt the carrot free money.

Many worry in the mortgage crisis, which reached in 2008, moral hazard. House - and apartment owners went regulators for mortgages, dumped money into the system and the Government saved a couple of companies, for the chaos. Observers fear that the moral-hazard would grow if the borrowers and businesses began to believe that she could get away with great risks.