Money & WorkMental model
The insured drive more recklessly. So do banks.
Moral hazard describes how people take more risk when someone else bears the loss. With full coverage you park tighter; with theft insurance you leave the bike unlocked. Systemically important banks count on state rescue and gamble accordingly. Insurers respond with deductibles; regulators with capital requirements.
Useful: Whenever you protect someone, consider which behaviour you've just made cheaper.
Source: de.wikipedia.org