A concept that people will take risks if they have an incentive to do so. If a party to a contract has an incentive to take unusual risks in pursuit of gain, either because the terms of the contract limit its responsibility for losses that may result, or because the party believes that the contract will not be strictly enforced against it, the contract is said to involve moral hazard. Moral hazard comes from the insurance industry, where the existence of an insurance contract might increase risk-taking by an insured that does not stand to suffer losses arising out of its risky behavior. In finance, moral hazard concerns the risk that borrowers are more likely to make economically reckless decisions if they believe that private or governmental institutions stand ready to accept the responsibility for losses resulting from economically risky behavior.