moral hazard

noun

plural moral hazards

: a situation in which a party is incentivized to risk causing harm because another party is obligated to remedy the consequences of the harm caused

… the situation that economists call moral hazard, which means the big bankers were free to take excessive risks because they assumed the federal government would clean up their mess.

—Joe Klein

specifically : the possibility of loss to an insurance company arising from the character or circumstances of the insured

Examples of moral hazard in a Sentence

Recent Examples on the Web

The term moral hazard entered the popular lexicon during the 2008 global financial crisis, which Sorkin chronicled in his hit book Too Big to Fail, to explain the widespread fear that bailing out banks would set a damaging precedent by rescuing them from the consequences of their own actions. —Evan Hughes, The Atlantic, 20 Oct. 2025

Critics have argued that the industry is a prime example of moral hazard—that, by mitigating the potential consequences of a fatal shooting, self-defense insurance makes such outcomes more likely. —Rachel Monroe, New Yorker, 16 Sep. 2025

However, buyers must consider the moral hazard and the potential of escalating sanctions. —Ariel Cohen, Forbes.com, 15 July 2025

The created a new moral hazard, and then the Fed and other regulators stood by while new derivative financial instruments — collateralized mortgages and other debts — created a price bubble. —Edward Lotterman, Twin Cities, 13 Apr. 2025

Word History

First Known Use

1861, in the meaning defined above

Rhymes for moral hazard

• haphazard

Legal Definition

moral hazard

noun

1

: the possibility of loss to an insurance company (as by arson) arising from the character or circumstances of the insured

deductibles decrease moral hazard

2

: the likelihood of investors to take greater risks because of the knowledge that losses incurred as a result of those risks will be covered by another (as a government)