Finance glossary
Moral Hazard
Definition
When protection from risk encourages riskier behavior.
Moral hazard arises when one party takes on more risk because someone else bears the consequences. Bailouts can encourage reckless lending; insurance can make people less careful. It is a central concern in finance, insurance, and policy design.
In a sentence
Bailing out reckless lenders creates moral hazard, encouraging the same risky bets next time.
Get a word like this every morning
Word of the Day on your Home Screen, with quizzes and flashcards. Get the app →