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Match each scenario with one of the following choices: Perverse Incentives, Moral Hazard, "Law" of Unintended/Unforeseen Consequences. 

Options
A.A bank profits from offering very high interest, uncollateralized loans to people with poor credit ratings, knowing that the federal government will not allow the bank to fail and hurt people who have trusted the bank with their savings.
B.A bank profits from offering very high interest, uncollateralized loans to people with poor credit ratings, knowing that the federal government will not allow the bank to fail and hurt people who have trusted the bank with their savings.
C.The parents of 6-year-old Sadie and 3-year-old Bennie offer candy to the children as a reward for cleaning up their play area and putting away their toys. They do the cleanup and get their reward. While enjoying their candy, Sadie slyly whispers to Bennie, "Tomorrow we will make another mess and get more candy!"
D.In 1920, the 18th Amendment to the Constitution banned the sale and use of alcohol throughout the United States, with the goal of reducing serious crimes. However, crime skyrocketed, including the rise of organized criminal gangs who supplied alcohol in an underground economy and protected their "territories" through murder, assault, extortion and threats.
E.Perverse Incentives
F."Law" of Unintended/Unforeseen Circumstances
G.Moral Hazard
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Step-by-Step Analysis
We’re asked to match each scenario with one of three concepts and then explain the reasoning for each choice. Below, I break down each scenario, examine the possible labels, and explain why the selected option fits or does not fit, using distinct reasoning styles for variety. Scenario 1: A bank profits from offering very high interest, uncollateralized loans to people with poor credit ratings, knowing that the federal government will not allow the bank to fail and hurt people who have trusted the bank with their savings. - Why Moral Hazard is the best fit: The key idea is that the bank’s knowledge of a government safety net reduces its incentive to screen risk or to avoid risky lending, because losses are cushioned by external guarantees. This describes moral hazard, where the presence of protection from downside risk leads to riskier behavior by the insured party. - Why the other options don’t fit as well: - Perverse Incentives would emphasize that incentives create a harmful, unintended outcome, but the core mechanism here is the protection from loss enabling riskier lending, rather than an incentives design that directly encourages a social misbehavior like cheat......Login to view full explanation

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