Question

A situation in which one side of an economic relationship takes undesirable or costly actions that the other side of the relationship cannot observe is called __________.

Answer 1

moral hazard

Step-by-step explanation:

Moral hazard appears in markets with asymmetric information. It corresponds to an opportunistic behavior where one of the sides seeks its own benefit at the expense of the other which is being unable to observe their behavior. The entity assumes more risks in its investments because the profits will be for them while the losses will be assumed by the other side. Those who suffer the negative part, cannot do anything because there is no perfect information and do not know the exact intentions.