Moral Hazard

Definition: Moral Hazard is the human tendency to be more willing to take a risk, knowing that the potential costs or burdens of taking such risk will be borne, in whole or in part, by others.
MH is a special case of asymmetric information, a situation in which one party in a transaction has more information than another. MH arises in the agency problem where the agent acts on behalf the principal.

More on moral hazard.
More on financial markets: Asymmetric Information, Call Option.

MBA Brief offers brief, yet very accurate definitions of MBA concepts, frameworks, methods and models. We keep it short and provide some links in case you'd like to learn more around a subject.