Moral Hazard

A situation in market behaviour in which participants are encouraged to take overly risky positions because their exposure is based purely on upside and are isolated from downside of the positions failing.

Often cited as a factor leading to the 2008 subprime mortgage crisis.

See credit default swaps.

References

  1. Momtaz, Paul P. 2020. ‘Entrepreneurial Finance and Moral Hazard: Evidence from Token Offerings’. Journal of Business Venturing, 106001.
  2. Ball, Laurence M. The Fed and Lehman Brothers: setting the record straight on a financial disaster. Cambridge University Press, 2018.
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