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There’s an economics concept called moral hazard that I kept hearing on Bloomberg and finally did a little research on.

Moral hazard refers to the prospect that a party insulated from risk (such as through insurance) will be less concerned about the negative consequences of the risk than they otherwise might be; for example, an individual with insurance against automobile theft may be less vigilant about locking the car even though locking the car is a simple risk reduction strategy. Moral hazard arises because an individual or institution in a transaction does not bear the full consequences of its actions, and therefore has a tendency or incentive to act less carefully than would otherwise be the case, leaving another party in the transaction to bear some responsibility for the consequences of those actions.

Moral hazard goes by another common name – rewarding behaviors with an outcome that’s opposite the goals you want to achieve. See also mixed messages, mixed signals, and rewarding stupidity. The most prominent example of moral hazard I can think of is an electorate that was tired of the Iraq war re-electing the president, thereby reinforcing behaviors it didn’t want.

I mention this because a number of times during this past weekend, the topic of giver’s gain came up. Give to get, give, etc., and the only caution I would mention is to keep moral hazard in mind. Give to get, but make sure that you’re doing so for the right reasons and not providing an incentive for unwanted behaviors.

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