Mitigating moral hazard in insurance contracts using risk preference design

Preferences might be affected by exogenous inputs, such as information generated by advanced technologies. This paper proposes a thought experiment called risk preference design to investigate this influence within a class of principal-agent problems. Risk preference design has potential to mitigate moral hazard in insurance contracting. A quantitative approach is introduced to study the effects. We use a linear contract case study to demonstrate the role of risk preference design in strengthening financial security.