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The Importance of Reducing Moral Hazards with Students

Last year, two educators shared a similar story with me about students who learned how to work the “school system.” Each of the students purposely did poorly on their exams at the beginning of the school year. They answered questions almost randomly. By midterm, they put more thought into the tests they took and by the end of the year, they did their best—knowing they would show improvement.

When asked why they did this, both students revealed what they knew:

  • My parents just want to see improvement in my test scores. And I improved.
  • My teachers want me to succeed and will do all they can to insure I do.

In both cases, these students were hedging their bets, taking risks because they felt confident the adults would make sure they felt successful in the end. In fact, the adults in their life wanted those students to succeed more than the students did.

A Moral Hazard

This is what economists and psychologist call a “moral hazard.” In case you forgot, let me remind you of the definition of a moral hazard:

A moral hazard is the lack of incentive to guard against risk when one is protected from its consequences.

In the United States today, we see more and more of these moral hazards happening before our very eyes. One example is a financial investor who takes more risks with his money because he’s insured. This person is more apt to make risky decisions that benefit him in a payoff because his consequences are removed and placed on the insurance company.

Similarly, an employee who drives a company car may be more apt to drive carelessly because she doesn’t have to pay for the repairs of that vehicle. It’s a moral hazard. Whenever consequences are diminished for bad choices, people are prone to be a little more risky in their conduct.

In other words, the risk of poor decisions is borne by others.

Recently, a miracle treatment was discovered for opioid overdose. It’s called the Lazarus Drug and has been shown to bring unconscious drug abusers back to consciousness. The testimonials are amazing. The bad news is, it seems to cause opioid users to take more risks. When experimental and control groups were observed by medical professionals, they noticed that deaths by overdose were not going down where this drug was available. In fact, in some parts of the country, they had risen. After examining the evidence, medical professionals conclude it’s a “moral hazard.” Because opioid users know this drug is available, they are taking more of the drugs, and often not getting to the antidote quickly enough. When they felt their risk of dying was reduced, they took more risks. This is a natural human inclination throughout history.

It is also an inclination with our kids in too many areas.

Moral Hazards Among Our Students

Economist Paul Krugman describes a moral hazard as “any situation in which one person makes the decision about how much risk to take, while someone else bears the cost if things go badly.”

In too many cases, we adults communicate that we have more to gain or lose than our students do when they make decisions—and that has returned to haunt them. We’ve communicated this by passing more legislation, creating more rules and developing more safety policies instead of teaching our young to act responsibly and experience the benefits or consequences of their behavior. We own it, not them.

  • Students who know if they forget their homework, backpack or permission slip, mom or dad will rush it in, rescue them and solve their problem.
  • Students who get harmed or even die from stupid accidents because all their lives we passed safety rules instead of teaching them responsibility.
  • Students who are paralyzed from making decisions because we did it for them all their life, too afraid to let them learn and experience tough consequences.

The fact is, too many students who’ve been hovered over by parents, teachers, coaches and adult guardians are prevented from taking normal risks in adolescence. In the end, those young adults don’t even know how to mitigate risk when it’s time to do so. We either did it for them, or we created a fool proof environment.

As they become adults, they require more legislation, more policies, more rules and regulations because they never genuinely “owned” their life. They are still immature.

It’s time we reduce “moral hazards” in our kid’s lives. How? By not solving all their problems with more policies or practicing controlling leadership on our part. They need to see the benefits and consequences of their decisions. We must let them own their choices and communicate that we believe they’re capable of doing so.


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  2. Ianthia Smith on August 28, 2019 at 9:12 am

    My niece recently married at 19 and my son is getting married at age 19. They are both having challenges with adulting. In many ways I still want to make rescue them and make everything OK for them. In a warped way I birder I’m feeling like a failure as a parent if I don’t but I am staying strong! I am advising but not bailing them out. They can take advice or leave it. And I have have told them that in the end, they need to pray about it and seek God because they (not me) will have to live with the positive or negative consequences. And their adult decisions do not determine my success or failure as a parent. I am hear to listen and advise when asked. Thank you for all your curriculum and podcasts. They are so helpful in learning to parent adult children.

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The Importance of Reducing Moral Hazards with Students