Question

Robert got a new job and relocated to a different city. He initially decided to stay in a small apartment close to his office.​ However, he decided to stay in a much bigger and costlier apartment when he found out that his employer would pay him a house rent allowance.This is an example of​ ________.

Answer 1

Answer:

Moral Hazard

Explanation:

The term 'Moral Hazard' refers to a scenario where a person is willing to take on higher risk or in this case, is willing to incur a higher cost as Robert understands that the cost will be covered by his employer. Such a hazard usually arises from situations when initially the involved parties do not have clear and complete information. Once the new information is shared, they tend to change their behavior and take up a risky or expensive option like Robert did.