Thursday, 14 May 2009
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Moral Hazard
Malcom Gladwell, relating sports, the economy and health insurance
I think, for example, that the idea of ranking draft picks in reverse order of finish -- as much as it sounds "fair" -- does untold damage to the game. You simply cannot have a system that rewards anyone, ever, for losing. Economists worry about this all the time, when they talk about "moral hazard." Moral hazard is the idea that if you insure someone against risk, you will make risky behavior more likely. So if you always bail out the banks when they take absurd risks and do stupid things, they are going to keep on taking absurd risks and doing stupid things. Bailouts create moral hazard. Moral hazard is also why your health insurance has a co-pay. If your insurer paid for everything, the theory goes, it would encourage you to go to the doctor when you really don't need to. No economist in his right mind would ever endorse the football and basketball drafts the way they are structured now. They are a moral hazard in spades.
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Comments (1)
Case in point: When I first moved back home, I worked for 8 months for a hospital in the ER doing registration on third shift. During which time, the most common people were those on state aid who only suffered from normal cold, flu, or ear aches. Since they didn't have to worry about paying for it, these people just came to the ER and abused a very much burdened health care system simply because they could. It sounds harsh of me and not everyone on this type of aid does this, but when you end up entering the dr's notes at the end of the shift and see the diagnosis (and also seeing repeat offenders in such a short time span) it made me very angry to witness.