Elevate Your Mind.
Through the Master Mind Newsletter, delivered every other Tuesday, we unleash your full potential and upgrade decision-making. We’ll explore mental models and life design.
By Juan Carlos
A person or group who does not have to bear the full responsibility for an action is more likely to behave recklessly.
The canonical example is when a corporation is willing to take on more risks because they know their insurance company will have to cover all losses.
Why Use It
It can help you evaluate whether a person or group has a reason to exhibit riskier behavior because they won’t have to pay for the associated costs that result from it.
When to Use It
This simple rule can break down counterintuitive arguments that lack empathy or logic, especially when lives or money are at stake. Use it to observe any system from insurance to injustice.
How to Use It
Single out a person, people, or entity that is behaving carelessly and is not shouldering the costs of their decisions. Recognize if and how they should change.
Study your daily life and look for discrepancies in any system. Once you spot a moral hazard and become more attuned to them, you can do something about it.
How to Misuse It
If you don’t shoulder any costs for your actions, you are much more likely to practice dangerous or careless behavior.
Conversely, if you always protect others from making their own mistakes, your generosity could affect their future actions and risk tolerance. Over time, they will make more mistakes than they would have had you not intervened.
When and where you perceive moral hazards, be vocal, and work toward changing negative behaviors or poorly built systems, especially if lives are at risk.
Where it Came From
The term was first coined in the 17th century and became commonly used in the 19th century by English insurance companies. Economists rediscovered the word in the 1960s.
Unlock Clear Thinking
Fueled by a passion for storytelling and excitement for life design, I find joy in reframing narratives to illuminate paths toward fulfillment. My experience spans high-growth startups, filmmaking, and social impact, culminating in my authorship of “Mind Guide: 49 Mental Models for Effective Decision Making.” Through mentoring and coaching, I guide teams and individuals to discover purpose and cultivate a meaningful life.
I started in film, directing award-winning features such as ‘Know How’ and ‘Second Skin.’ These cinematic endeavors earned me recognition and allowed me to serve as a spokesperson for Adobe. I founded the White Roof Project, a grassroots climate activism campaign that mitigated the urban heat island effect and spurred community-led social change.
I carried my storytelling skills and passion for societal transformation as I transitioned into the startup ecosystem. Initially, I contributed to social impact apps, converting complex issues into accessible solutions. This early experience laid a foundation for my later work, where I led the development of groundbreaking products within high-growth startups. My work has underscored the potential of technology to innovate industries and amplify the quality of human life.