moral hazard
Insured party's temptation
Moral hazard is the tendency to take greater risks when you're protected from the consequences.
The term comes from insurance—a person with fire insurance might be less careful about fire prevention.
It extends to any situation where one party bears the costs of another's recklessness: The bailout created moral hazard by rewarding banks for risky behavior.
The hazard isn't immoral behavior itself, but the structural incentive toward it.
Emergency aid preventing bankruptcy
- too big to failRequiring rescue due to scale
- subprimeUnder top credit tier
- derivativesThings derived from another
- systemic riskEconomy-wide collapse potential
credit default swaps · financial crisis · leverage · lender of last resort · contagion · bankruptcy · deregulation · oversight
Careless disregard for danger
- irresponsibilityFailure to meet obligations
- negligenceFailure to exercise care
- carelessnessInattention causing mistakes
- imprudenceUnwise decision-making
shortsightedness · heedlessness · misconduct · overconfidence · free riding · shirking · opportunism · exploitation
Payments for insurance coverage
- underwritingRisk evaluation and acceptance
- deductiblesPre-coverage personal payments
- claimsStatements of truth
- actuarialOf risk calculation
coverage · policyholder · insurer · adverse selection · liability · exclusions · indemnity · co-payments
Obligation for one's actions
- responsibilityState of being answerable
- fairnessJust and equal treatment
- justiceFair treatment under law
- dilemmaForced choice between undesirables
integrity · trust · stewardship · fiduciary duty · transparency · due diligence · disclosure · good faith
Added compensation beyond wages
- compensationPayment for services rendered
- payoffCulminating benefit received
- profit motiveDrive to earn money
- skin in the gamePersonal risk in outcome
accountability · clawback · performance pay · golden parachute
bailout
Emergency aid preventing bankruptcy
- too big to failRequiring rescue due to scale
- subprimeUnder top credit tier
- derivativesThings derived from another
systemic risk · credit default swaps · financial crisis · leverage · lender of last resort · contagion · bankruptcy · deregulation · oversight · bank run
recklessness
Careless disregard for danger
- irresponsibilityFailure to meet obligations
- negligenceFailure to exercise care
- carelessnessInattention causing mistakes
imprudence · shortsightedness · heedlessness · misconduct · overconfidence · free riding · shirking · opportunism · exploitation · gaming the system
premiums
Payments for insurance coverage
- underwritingRisk evaluation and acceptance
- deductiblesPre-coverage personal payments
- claimsStatements of truth
actuarial · coverage · policyholder · insurer · adverse selection · liability · exclusions · indemnity · co-payments · adjuster
accountability
Obligation for one's actions
- responsibilityState of being answerable
- fairnessJust and equal treatment
- justiceFair treatment under law
dilemma · integrity · trust · stewardship · fiduciary duty · transparency · due diligence · disclosure · good faith · culpability
bonuses
Added compensation beyond wages
- compensationPayment for services rendered
- payoffCulminating benefit received
- profit motiveDrive to earn money
skin in the game · accountability · clawback · performance pay · golden parachute
- market economicsmonopoly, oligopoly, perfect competition, duopoly, monopsony
- economic problemsmarket failure, recession, inflation, deflation, stagflation
- theories & lawssupply and demand, law of demand, law of supply, Parkinson's law, Peter principle
- incentive theoryadverse selection, principal-agent, signaling, screening, shirking
- economicssupply and demand, inflation, GDP, GNP, gross domestic product
- consequencesconsequence, consequences, result, results, effect
moral hazardpersonal responsibility
Duty to own consequences
skin in the game · accountability · self-insurance · self-reliance · answerable
moral hazardfiduciary duty
Obligation to act loyally
stewardship · prudence · due diligence · duty of care · risk aversion
moral, hazard, immoral, morality, morals, hazardous, hazards, amoral, immorality