Question

Outline how issues like imperfect information and imperfect competition can affect expected monetary returns in the sports gambling market. Why might individuals gamble if the expected monetary return is negative?

Answer 1

Gambling involves a high rate of risk as probability is very low of success and the investment made in order to gamble is usually very high. As a matter of fact, where the odds of gamble actually being successful is skew , the amount of bet is even higher. This is the nature of a risk loving individual , although the odds of things being in favour is very skew.

Issues like imperfect information and imperfect competition is an environment which is highly compelling for the gamblers , as , discussed above , the returns in such cases is even higher. It can be understood out of game theory where , although the odds are low of winning, the incentive to gain high rates of return attracts the individuals to actually gamble .

Although the probability of gaining out of a gamble is negative and monetary losses is a must, there are always some risk loving individual whose incentive of the winning amount is much higher than the monetary loss suffered due to gamble. This approach instigate high bids in gambling.