Monday, February 1, 2016

Insured Behavior

"Moral hazard is when someone takes your money, and is not responsible with it."
--Gordon Gekko (Wall Street: Money Never Sleeps)

As 19th century English insurance firms observed, individuals tend to change their behavior once that behavior is insured. When people realize that their actions and their potential negative consequences are being subsidized, they will spend more of other people's money and take more risk.

This is known as moral hazard. Moral hazard runs rampant today as government programs in areas such as finance, education, and healthcare grow more intrusive.

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