CFA Practice Question

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CFA Practice Question

After getting insured, the person is more careless about health. For instance, he/she may take fewer dietary precautions, smoke or drink more, or indulge in physical activities dangerous to the health. This is an example of:

A. adverse selection.
B. moral hazard.
C. regulatory capture.
Correct Answer: B

While in adverse selection, the seller is usually the one possessing more information, moral hazard usually has the buyer (of the insurance service) having too much control.

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