Talk:Morale hazard

Moral versus Morale Hazard
I think the distinction made on this page between moral hazard and morale hazard is a false one, and derives from a misunderstanding of the nature of moral hazard. Moral hazard does not imply any conscious or malicious intent, but can simply indicate an indifference to loss, as the Wikipedia article on moral hazard correctly states. The author of this page has not found any reputable economist using the term morale hazard, but merely refers to something called Rupp's Insurance & Risk Management Glossary, whose definition of moral hazard is confusing and incorrect.--RichardVeryard 14:09, 10 October 2006 (UTC)
 * Hi Richard, in insurance there is a crucial distinction between the two - which is important in insurance theory, since the idea of risk reduction hinges on whether the insured can do anything consciously to reduce a loss. Also, the concept of moral hazard is something that could cause the denial of an insurance claim (because of the outward falseness of the claim), whereas a morale hazard would not.  The reference listed was put by the first user, and I have been meaning to add a reference from an insurance textbook that distinguishes well between the two.  Cheers, Bellemichelle 14:50, 11 October 2006 (UTC)
 * Hi Bellemichelle. My understanding of the term "moral hazard" comes not from the insurance industry but from economic theory, which is where I believe the term originates. There appears to be a significant divergence between two different notions of moral hazard, and we may need to find a way of explaining both notions on Wikipedia. However, I don't currently have the time to look up the economic literature. I believe that even if there is a difference between Moral Hazard and Morale Hazard (which I am not yet convinced) it would be easier for the reader if this difference were explained in a single article rather than spread across two articles. Therefore I still believe that a merger would be a good idea.--RichardVeryard 13:38, 2 November 2006 (UTC)
 * As far as I can make out on a quick survey, the term moral hazard was introduced into economics by the Nobel-prize-winning economist Kenneth Arrow in 1963, and refers to the fact that the existence of insurance changes people's behaviour, without their necessarily doing anything immoral or fraudulent. I believe this is what Bellemichelle wants to call Morale Hazard. I should prefer to stick with Arrow's terminology. (Try a google search for "moral hazard arrow". There are some good recent interviews with Professor Arrow, and an enormous amount of economic literature that refers to his work.) --RichardVeryard 14:17, 2 November 2006 (UTC)

Different Terminology?
Richard, here is what I posted on Talk:Moral hazard, I don't know if you saw: In insurance, at least, the two need to be distinguished. From "Property and Liability Insurance Principles", by Ludhard & Wiening (published by the AICPCU):

Moral hazards are conditions that may lead a person to intentionally cause or exaggerate a loss. The threat from moral hazard is the possibility that the insured may intentionally cause a loss or file a false claim. For example, an insured may intentionally cause a fire or an auto accident to collect a claim payment on a building or car and unjustly enrich himself or herself.

Attitudinal hazards, also known as morale hazards, involve carelessness, or indifference to, potential loss on the part of an insured or applicant. Such hazards are more subtle and thus more difficult to detect than are moral hazards. A particularly dangerous attitudinal hazard is an insured's attitude that "I don't need to be careful because I have insurance."

This is a huge problem in insurance, and they are two categories that are often distinguished in this industry - a moral hazard-induced loss could end an insured in prison!. Although they might be the same in economics, we can distinguish in the two articles that the terminology used in each field is quite different (and in fact, perhaps contradictory). Bellemichelle 20:18, 2 November 2006 (UTC)


 * Yes I did see this. The problem is that we seem to have one set of definitions used within the Insurance industry, and a conflicting set of definitions used by economists. Within economics, moral hazard does not involve immoral or illegal conduct. I accept your view that the insurance industry definitions should be presented in Wikipedia, provided it is made clear that these definitions are not the same as those prevailing in the economics literature, and it seems you accept my view that the economics definitions should also be presented. How I propose we resolve this is by having a single article that contains three sections: (1) Moral Hazard as used in Economics. (2) Moral Hazard as used in Insurance. (3) Morale Hazard as used in Insurance. The reason I'd prefer to have all three definitions in one place is because I believe Wikipedia readers will need to see the concepts together in order to understand them properly. So Morale Hazard would redirect to the appropriate section within the combined article on Moral Hazard. At the other extreme, we could produce three articles: Moral Hazard (Insurance), Moral Hazard (Economics) and Morale Hazard (Insurance). But this would involve a lot of repetition and disambiguation between the three articles explaining the differences, and I'd prefer to avoid this if possible. --RichardVeryard 15:41, 3 November 2006 (UTC)

Hi again Richard. When you put it that way, does make sense to put it in one giant article together: Moral hazard, with subsections for "in Economics" generally, then "in Insurance", followed by an explanation of Morale hazard as used in Insurance and the importance of that distinction. Thanks and cheers! Bellemichelle 18:01, 10 November 2006 (UTC)

Is "morale hazard" an insurance term?
All I can find is a simple misspelling of "moral", as well as a misunderstanding of the economic concept. I can see people in the insurance industry wanting to make the distinction discussed, but the defenders of this article need to prove that distinction is regularly discussed by credible sources using that term. I propose this article be deleted, and a comment inserted in the article on Moral hazard that "moral" has been misspelled "morale" but that that is incorrect. Bracton (talk) 15:47, 3 February 2009 (UTC)


 * Economic theory does not make the distinction that User:Bellemichelle mentions above. But she seems to have documentary evidence that the distinction is made in insurance. I have no idea how standard the distinction is. But we should be clear that whether a distinction is made depends on the field. --Rinconsoleao (talk) 11:24, 10 March 2009 (UTC)


 * The distinction is indeed quite standard in the insurance industry and the article should remain. Personally I don't see why economists don't adopt the more coherent definition used in the insurance industry rather than lumping together both intentional and unintentional moral hazards. II  | (t - c) 18:53, 23 April 2009 (UTC)

How about a serious history of Moral Hazard?
I don't think this article should exist because the concept of moral hazard has changed by economists arguing that the insurance industry's understanding of risk and risk sharing is something that Arrow apparently dislikes, and so he used an old insurance company term to discredit insurance. A quick google returns this link to http://books.google.com/books?id=FnCqD7Xfsz8C&pg=PA388&lpg=PA388&dq=history+moral+hazard+insurance+1600&source=bl&ots=EMJ0aY0d10&sig=MNUBESqQIYUHHnXVotx8vThi_-A&hl=en&ei=H6iBSs6tHNGptgfL_6nFCg&sa=X&oi=book_result&ct=result&resnum=13, the title being The "Economic History of Britain Since 1700: 1860-1939 - Google Books Result": "'Moral hazard' has to do with taking advantage of knowledge, ... of corn which he knows is going to fail (supposing the insurance company does not know)." You are not allowed to insure a loss for which you have no risk because of moral hazard - I can't buy life insurance on you, because my motivation is to kill you, or I know you will be killed and I'm going to profit from your death without incurring any risk.

So, should this article be deleted or the attempt to provide an original meaning to moral hazard by adding an e and still getting it wrong be merged into moral hazard, which also gets the original meaning wrong? Mulp (talk) 17:30, 11 August 2009 (UTC)

Malibu homeowners courting federal aid by embracing fire hazards?!
"Insurance can be seen as discouraging preventive measures, such as proper fire prevention. For example, the expectation of federal government disaster aid seems to encourage the residents of Malibu, California to let bushes and trees grow near their houses, as part of their landscaping. This increased vegetation raises the risk of fire damage to their houses." I've not considered this article's other assertions, but this one seems highly implausible to me. I'd like some evidence of this encouragement acted upon with this expectation, or an argument that it is (credible) common knowledge that it is done. Did they clearcut their property before somehow coming under the sway of this expectation?

Alternatively, if the intent is a rhetorical construction, I'd like to see language that explicitly construes, e.g., 'Insofar as the expectation of federal government disaster aid might seem to encourage the residents of Malibu, California to disregard the risks of landscaping with bushes and trees near their houses, that would seem to be an example of morale hazard. But the whole idea of construing it begs the question, should the article pick on Malibu?

-SM 03:41, 4 December 2009 (UTC)

Disambiguation: Moral Hazard (Economics) and Moral Hazard (Insurance)
Should there be some sort of disambiguation. As noted here, in insurance theory there is a difference between "Morale Hazard" and "Moral Hazard." However, the definition of "Moral Hazard" given differs from the definition of "Moral Hazard" in economics. The reference given ("Analyzing Hazards" Ludhardt, C. M. & Wiening, E. A. (2005) Property and Liability Insurance Principles, 4th edition) confirms that in insurance theory, "Morale Hazard" occurs when the insured party becomes indifferent to loss and "Moral Hazard" occurs when people misrepresent themselves to insurance companies.

On the other hand, a source like "Advanced Microeconomic Theory (3rd Edition) by Jehle and Reny" confirms that in economic theory, Kenneth Arrow's concept of "Moral Hazard" occurs when the insured party becomes indifferent to loss. The term "Moral Hazard" as used in insurance theory is perhaps slightly related to the concept of "adverse selection" in economic theory, but only slightly.

Perhaps there should be a disambiguation page to distinguish the two and a note made in each page that differing definitions exist depending on the subject.

--Blossomonte (talk) 23:36, 30 May 2014 (UTC)


 * I just stumbled on this page while working on both a brief and an article regarding the same policy exclusion (relating to "continuous or repeated leakage or seepage"). With respect to the economics aspect of the discussion/debate I am blissfully ignorant. However, I have a solid understanding of the two types of hazard in the insurance context, which is more-or-less consistent with the AICPCU passage quoted by BelleMichelle back in 2006. At the end of this back-and-forth (apparently in December 2016) it appeared that there would be one or more pages explaining the distinctions in both the economics and insurance contexts. However, at this point all I see on Wikipedia is "moral hazard." "Morale/attitudinal" hazard, which in the insurance context is a separate concept relevant to separate policy provisions and loss-types, seems to have vanished. All that remains aside from this page is a "redirect page" pointing the user to "moral hazard." Am I missing something? Fireinsuranceguy (talk) 21:28, 13 September 2022 (UTC)
 * Apologies if this appears in the wrong spot on the page. I am still getting used to Wikipedia's format.
 * "Moral hazard" also figures prominently in insurance (in cases involving alleged arson and other intentionally caused losses), for a total of four separate but related concepts.
 * I think it makes sense to: (1) treat the economic terms as close to entirely distinct from the insurance ones (perhaps just a single link); and (2) provide detailed explanations of the distinction between hazard types within each discipline. This makes sense because those seeking clarification as to the meaning of (for instance) "morale hazard" in the insurance context will generally be doing so because they do not understand how it differs from "moral hazard," not because they seek to understand the difference between an economic "morale hazard" and an insurance "morale hazard."
 * Regarding insurance, this might mean a page for "moral hazard (insurance)", one for "morale/attitudinal hazard (insurance)", a paragraph in each briefly explaining the distinction and a link to the page for the other within that paragraph. Fireinsuranceguy (talk) 18:27, 19 September 2022 (UTC)


 * I agree it is confusing at the moment, a note should be placed at the top of Moral hazard pointing to Morale hazard, and perhaps greater distinction between economic and insurance concepts. There are three separate but related concepts Morale hazard (Insurance), Moral hazard (Econonics) and Moral hazard (Econonics). The later two share the same article.