Yesterday I went to the Cinema to watch Man of Steel. The film was absolutely amazing, and lies up there with the Batman trilogy as my favourite films of the past few years. However, whilst watching the film the idea of Moral Hazard came to mind.
What is Moral Hazard?
Moral Hazard is the theory that individuals/firms will take greater risks if they know that the costs of these risks will not be incurred by them. The example that the media use frequently is ‘banks too big to fail’, the idea that bankers know that because of their size if something goes wrong they will have to be bailed out by governments/organisations, and therefore they take greater risks.
Moral Hazard also has ties with the theory of asymmetric information. Bankers will be more likely to take greater risks when the money they invest is not theirs, but the investor will lack the information to challenge/recognise this.
What has this got to do with Superman?
Well, the thought process I went through is similar to the ‘banks too big to fail’ idea. If Superman continually saves individuals from dire situations my theory is that individuals will put themselves into those situations more readily. For example if someone forgets to lock their car on their way into work, in a normal situation they would turn around and go back to lock their car. However in a situation involving Superman they may decide to leave their car unlocked, believing that ‘It doesn’t matter, Superman will stop my car getting robbed’ – the result of this? Possibly more crime and disorder, due to situations being ‘handed’ to the criminals.
Another example could be individuals being less savvy about pickpockets in crowded urban areas, and leaving items such as phones and wallets on show; therefore taking higher, and more unnecessary, risks due to their belief Superman will prevent anything going wrong.
Let me know your thoughts and whether you have any examples similar to the one above: tweet me on @breadeconomics.