I had only been on the highway for a minute when I saw the flashing lights behind me.
I looked down at my speedometer. It read 80 miles per hour.
My hands started to tremble.
I was still in high school and had only been driving for a couple months. Yet, I’d already gotten myself into trouble.
I slowed down and pulled to the side of the road. As I waited for the officer to get out of his vehicle, I stared at my reflection in the rearview mirror.
I was in formal attire and my hair was neatly trimmed. Was I presentable enough to escape with a warning?
I saw the officer approaching. I was about to get my answer.
License and registration please.
I handed the documents over to the officer. His expression did not change.
I clocked you going 82 miles per hour back there under that bridge. You do realize that this is a work zone, don’t you? The speed limit is 45.
I had not realized that. Sure, there were orange cones sitting in the grassy median beside my vehicle. But I hadn’t seen any in the road. And I hadn’t seen a single construction vehicle either.
Still, it didn’t matter. I was getting written up.
The officer went back to his car to print out the citation. With the excessive speed violation and the work zone violation, I was on the hook for more than $1,000.
As I let the numbers on the ticket sink in, the officer gave two parting words of advice.
Slow down.
I drove home in a daze. I had no idea how I was going to pay the citation.
I broke the unhappy news to my parents as soon as I walked in the front door. They were justifiably furious.
Still, after a few moments, cooler heads prevailed. My father offered to cover the fine if I attended defensive driving classes.
I’d essentially be getting a clean slate.
I quickly accepted the terms. A couple of weeks later, I spent a morning in a hotel conference room watching presentations about how to check blind spots and safely pass vehicles. And soon after that, I was back on the road.
It was as if nothing had changed. And that was a problem.
Moral hazard.
This term is a hallmark of risk management circles.
It explains the behavior of those who act with impunity. Free of consequences for their actions, these individuals throw caution to the wind. And everyone else is saddled with the ensuing mess.
This was my experience after my father covered my hefty speeding ticket. I drove nearly as unburdened as I had before, leaving other drivers with little peace of mind.
On its face, Moral Hazard seems both reprehensible and avoidable. But the truth is far more complicated.
You see, institutional forces are out there to buffer us from risk’s implications. Not everyone has a father who will cover a $1,000 speeding ticket. But most drivers have insurance policies to cover the liability they might cause to other vehicles – and the people inside them – while behind the wheel.
The same principle has long held true for houses across our nation. Home insurance would offer financial protection against a variety of maladies. And until recently, this encouraged people to put down roots wherever they fancied.
And the business world? It’s littered with Moral Hazard too. Remember when the United States government bailed out major banks in 2008, and regional bank depositors in 2023? Those actions hardly deterred the risky behavior that preceded them.
The carte blanche – the blank slate – it’s meant to help us boldly plod ahead without being crippled by a one-off event.
But if it leaves us too bold for our own good, what’s the point?
Several months after my speeding ticket, I graduated from high school.
As I prepared to head off to college, I left the car behind. My father stated that I’d need to earn the right to drive around campus. The best way to achieve that right, he said, was with a few semesters of stellar grades.
About 18 months later, it was evident that I’d earned those stellar marks. So, at the end of winter break, my father accompanied me on the 1,300-mile journey to school.
Throughout that two-day trek, my father raved about how much I’d matured in college. He stated that I was ready for the responsibility of having a car.
But behind the wheel, I’d experienced little of that growth. The shadow of my speeding ticket had faded away, aided by the check my father had written. Bad habits were everywhere.
Moral Hazard had become entrenched. I was living on borrowed time.
And eventually, my luck ran out.
During my senior year of college, I totaled my car in a wreck on the highway. It was a humbling experience – and it left me without the means to get from my rental home to campus each day.
A few weeks later, my father surprised me once again. He’d be bringing one of the family sedans down to school that coming weekend and handing me the keys.
My graduation gift was arriving early. There was only one condition.
If I totaled this car, I’d be on my own.
I thought about how hard the past few weeks had been. I’d spend hours walking around campus with heavy textbooks turning my backpack into a boulder. And at the end of the day, I practically needed to beg friends for a ride home.
I thought about my time at the assessor’s lot a couple of days after the wreck. An insurance claims representative took one look at my mangled car and wrote me a paltry check. One that could never make me whole.
I thought about the accident itself. Of seeing the airbags deploy. Of that terrifying moment when I wasn’t sure if my friend in the passenger seat was alright.
I had seen the consequences of my actions. And I never wanted to experience them again.
So, I pledged to become a safer driver. And I’ve held true to that promise ever since.
Moral Hazard has no quarter here anymore.
Back in the 1980s, Nancy Reagan launched a crusade against drugs.
The First Lady sat in front of a camera in the White House and addressed the nation’s youth. She encouraged them to Just say no when illicit substances were bandied their way.
It’s tempting to view Moral Hazard in this way. If we reject it out of hand, we’ll act more responsibly.
But such temptations are nothing more than delusions. Moral Hazard is too embedded in our subconscious to be rooted out that easily.
It takes something more.
Ridding ourselves of this scourge requires a thought experiment. It demands that we actively consider the contours of the safety net around us – who builds it and who funds it. Then, it implores us to consider what would happen if that safety net wasn’t around – and to act accordingly.
These considerations consume plenty of mental bandwidth. They’re unpleasant. But they’re also necessary.
So, let’s take the initiative to open our eyes. To go the extra mile to banish our bad tendencies. And to lean into the responsibility that comes with risk.
We’ll all be better for it.