Module 3 Assignment: Moral Hazard and Uncertainty
AI Moral Hazard and Uncertainty
Solve the case of moral hazard and uncertainty. See table below.
Driving carefully carelessly Prob. loss Prob. loss
accident 0.25 $10.000 0.75 $10,000 no accident 0.75 0 0.25 0
- Make cases when insurance is or is not included. Analyze your results
- In both cases, alter the probabilities of having an accident or not if you drive carefully or not. Specifically, you have a 30% chance of having an accident if you go carefully and a 70% chance of not having an accident if you drive carefully. Invert these percentages if you drive carelessly.
- Do your initial results change, i.e., does having insurance give the person an incentive to drive without caution?
