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7 April, 12:30

Suppose that lady gaga goes to las vegas to play poker and at the last minute her record company says it will reimburse her for 40 percent of any gambling losses that she incurs.

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  1. 7 April, 16:30
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    The question is incomplete.

    a. Will Lady Gaga wager more or less as a result of the reimbursement offer?

    b. What economic concept does your answer illustrate?

    Answer:

    a. Lady Gaga wager more as a result of the reimbursement offer.

    b. Moral hazard is the economic concept illustrated in the answer.

    Explanation:

    Gambling is a betting game that involves wagering of money or valuable thing on an event with an uncertain outcome.

    Moral hazard is a situation in which the individual gets incentive to take more risk as they do not bear the full cost of the risk. In the above scenario, Lady Gaga undergoes the same situation. She was playing poker in Las Vegas. Her company informs that they will pay nearly 40% of her gambling loss. This made her to take more risk.
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