Why Does It Matter That Beliefs and Valuations Be Correctly Represented?

Simon Grant and Edi Karni

Working Papers from Rice University, Department of Economics

Abstract: This paper contains an analysis of a simple principal-agent problem illustrating possible problems that arise when the principal ascribes to the agent subjective probabilities and utilities that are implied by the subjective expected utility model but do not represent the agent's beliefs and valuations. In particular, it is possible that an incentive contract designed by the principal induces the agent to choose an action that is not in the principal's best interest.

JEL-codes: D81 (search for similar items in EconPapers)
Date: 2003-07
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Citations: View citations in EconPapers (4)

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http://www.ruf.rice.edu/~econ/papers/2003papers/02Grant.pdf

Related works:
Journal Article: WHY DOES IT MATTER THAT BELIEFS AND VALUATIONS BE CORRECTLY REPRESENTED? (2005)
Working Paper: Why Does it Matter that Beliefs and Valuations be Correctly Represented? (2002)
Working Paper: Why Does it Matter that Beliefs and Valuations be Correctly Represented? (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:riceco:2003-02

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