What is a morale hazard?

A morale hazard refers to the increased risk that arises when an individual behaves more recklessly or carelessly because they have insurance coverage. This type of hazard is associated with a person's attitude and how their mindset can lead to riskier behavior. For instance, if someone has car insurance, they might be less cautious while driving, feeling that the insurance will cover any accidents. This sense of security can result in carelessness that increases the likelihood of a loss occurring.

In the context of the other options, dishonest actions would constitute moral hazards, which focus on unethical behavior rather than carelessness. Environmental factors relate to physical risks that are not influenced by a person's behavior, and systemic issues refer to broader structural problems that don't stem from individual actions. Therefore, the emphasis on carelessness accurately captures the essence of a morale hazard.