Which of the following situations is an example of a moral hazard?

A moral hazard occurs when an individual takes more risks because they do not have to bear the full consequences of those risks. This concept often arises in insurance contexts, where an insured party may engage in riskier behavior because they know that any loss will be covered by their insurance policy.

In this case, Ken lighting a candle near window draperies and leaving the house demonstrates a moral hazard because he is placing others or property at undue risk. The action of leaving a candle unattended signals a disregard for the potential consequences—such as a fire—which could arise from that choice. If Ken has insurance that would cover damages caused by a fire, he may feel less compelled to consider the risks his actions pose, exemplifying the moral hazard where the presence of insurance leads to riskier behavior.

In contrast, the other scenarios depict situations that do not illustrate moral hazards in the same way. Kim's accidental running of a red light is not intentional and does not imply a willingness to take on additional risk in the presence of insurance. The narrow road leading to Mike's house is a physical characteristic and does not reflect on behavior or choices made by an individual. Similarly, Nancy falling asleep with a lit cigarette also represents a negligent act, but it lacks the specific element of