Why Does it Matter that Beliefs and Valuations Be Correctly Represented?

18 Pages Posted: 11 Jul 2005

See all articles by Simon Grant

Simon Grant

Rice University - Department of Economics; Australian National University

Edi Karni

Johns Hopkins University - Department of Economics

Abstract

This article contains an analysis of a simple principal-agent problem illustrating possible problems that may arise when the prinicpal 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.

Suggested Citation

Grant, Simon Harold and Karni, Edi, Why Does it Matter that Beliefs and Valuations Be Correctly Represented?. International Economic Review, Vol. 46, No. 3, pp. 917-934, August 2005, Available at SSRN: https://ssrn.com/abstract=758069

Simon Harold Grant (Contact Author)

Rice University - Department of Economics ( email )

6100 South Main Street
Houston, TX 77005
United States
713-348-3332 (Phone)
713-348-6329 (Fax)

Australian National University ( email )

Coombs Building 9
Canberra, Australian Capital Territory 0200
Australia
61-2-6125-4602 (Phone)
61-2-6125-3051 (Fax)

Edi Karni

Johns Hopkins University - Department of Economics ( email )

3400 Charles Street
Baltimore, MD 21218-2685
United States
410-516-7608 (Phone)
410-516-7600 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
21
Abstract Views
461
PlumX Metrics