Question

​milton can sell his house for $175,000, but he has an outstanding mortgage of $195,000. rather than selling the house, he is thinking about "helping" it burn to the ground so he could collect the $190,000 for which the house is insured. this would be an example of a ____ hazard.

Answer 1

This is an example of a moral hazard. This is a condition in which one party gets convoluted in a dangerous occurrence knowing that it is sheltered in contradiction of the risk and the other party will suffer the cost. It arises when mutually the parties have imperfect information about each other.