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

Federal flood insurance’s moral hazards The National Flood Insurance Program was established by Congress in 1968 to provide affordable flood insurance to the public while encouraging floodplain management. — Ivis García, The Conversation, 1 June 2026

Efforts to cancel student debt are portrayed not as social policy but as moral hazard. — Nataliya Gumenyuk, The Dial, 21 Apr. 2026

Ever since the Black Sox threw the World Series in 1919, the moral hazard of players betting on their own games has been evident. — Charlie Fink, Forbes.com, 24 Mar. 2026

The moral hazard Galloway decries at the institutional level has been perfectly replicated at the retail level. — Nick Lichtenberg, Fortune, 17 Mar. 2026

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)