What characterizes Morale Hazard?

Morale hazard refers to a situation where an individual’s behavior becomes more reckless or careless because they have insurance coverage, leading to an increased likelihood of loss. This phenomenon arises from a feeling of indifference or a lack of concern for the potential consequences that insurance provides a safety net against. Essentially, when someone knows they have insurance, they may take greater risks or fail to exercise proper caution.

In the context of the provided options, the choice highlighting carelessness increasing loss frequency accurately captures the essence of morale hazard. For instance, a driver might be less attentive or more reckless on the road, feeling secure that their comprehensive insurance will cover any resulting damages.

The other options reflect different concepts: intentionally harmful actions pertain to moral hazard but involve deliberate wrongdoing; professional negligence is closely tied to malpractice rather than the behavior influenced by the presence of insurance; and moral decisions in choosing insurance do not directly relate to the careless behavior that characterizes morale hazard. Thus, the focus on carelessness and its impact on frequency of loss is the defining feature of morale hazard.