Summary: 9/24/2010
1
13. Moral Hazard
· Moral Hazard: agent has
incentives to do things
that are bad for the
principal.
· Cash in the hat. Put in 1 or
Match Take
3. Player 2 can match. If
opponent matches, player
1 doubles investment.
· In original formulation,
can't put in 3 as will have
3 utility.
1 (1,1.5) (1,1)
3 (3,2) (3,3)
Sequential game
· Borrower/lender ­ moral hazard if borrower had
incentive to do things which are not in the

Source: Allan, Vicki H. - Department of Computer Science, Utah State University

Collections: Computer Technologies and Information Sciences