Question

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 35 percent of any gambling losses that she incurs.
a. Will Lady Gaga wager more or less as a result of the reimbursement offer? Less or more?
b. What economic concept does your answer illustrate? Adverse selection or moral hazard or irrational behavior?

Answer 1

Answer:

Refer below.

Step-by-step explanation:

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

Lady Gaga wager MORE.

b. What economic concept does your answer illustrate? Adverse selection or moral hazard or irrational behavior.

The economic concept answer illustrate is MORAL HAZARD.

Answer 2

Due to the reimbursement clause offered to Gaga on losses made, then she will wager more. However, this could in moral hazard.

• With a reimbursement clause of 35% on losses made, Lady Gaga will be buoyed by the fact that, she'll recoup 35% of her bet if she losses, then she'll most likely wager more.

• By promoting Lady Gaga on gambling, it could spark a moral effect, causing youths to adore and become more indulged in the act of gambling.

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