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Agency problem: Difference between revisions
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{{a|design|}}The [[agency problem]] addresses the intrinsic [[conflict of interest]] any [[agent]] working on a [[commission]] faces — any [[introducing broker]], [[broker/dealer]], [[asset manager]], [[architect]], building contractor — and that is that once it have received its [[commission]], it doesn’t really care a hill of beans what its [[principal]] gets, however much it might protest to the contrary. In a sense, this is a basic articulation of the [[prisoner’s dilemma]] and so shouldn’t surprise anyone — and ''should'' be cured by repeat interactions — your clients have memories and will remember when you ripped them off. | {{a|design| | ||
[[File:Secret agent problem.png|450px|thumb|center|A special agent’s problem, yesterday]] | |||
}}The [[agency problem]] addresses the intrinsic [[conflict of interest]] any [[agent]] working on a [[commission]] faces — any [[introducing broker]], [[broker/dealer]], [[asset manager]], [[architect]], building contractor — and that is that once it have received its [[commission]], it doesn’t really care a hill of beans what its [[principal]] gets, however much it might protest to the contrary. In a sense, this is a basic articulation of the [[prisoner’s dilemma]] and so shouldn’t surprise anyone — and ''should'' be cured by repeat interactions — your clients have memories and will remember when you ripped them off. | |||
But the [[iterated prisoner’s dilemma]] has a couple of natural limits. One is that it relies on repeated interactions with an indeterminate end. When the sky is falling on your head, it looks like a final interaction, and the calculus is different. Second, it takes no account of [[convexity]] effects. I can build up my reputation incrementally with thousands of small transactions — I can look like a five-star collaborator — only to blow it on one big position and defect. When that one outsized reward more than compensates for all the pennies in front of the steamroller, the normal rules don’t apply and an iterated game of prisoner’s dilemma becomes a one-off. This is what {{author|Nassim Nicholas Taleb}} calls the “Rubin Trade”. | But the [[iterated prisoner’s dilemma]] has a couple of natural limits. One is that it relies on repeated interactions with an indeterminate end. When the sky is falling on your head, it looks like a final interaction, and the calculus is different. Second, it takes no account of [[convexity]] effects. I can build up my reputation incrementally with thousands of small transactions — I can look like a five-star collaborator — only to blow it on one big position and defect. When that one outsized reward more than compensates for all the pennies in front of the steamroller, the normal rules don’t apply and an iterated game of prisoner’s dilemma becomes a one-off. This is what {{author|Nassim Nicholas Taleb}} calls the “Rubin Trade”. | ||
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{{Sa}} | {{Sa}} | ||
*[[Stakeholder capitalism]] | |||
*[[Drills and holes]] | *[[Drills and holes]] | ||
*[[Agency paradox]] | *[[Agency paradox]] | ||
*[[Shift the axis of dispute]] | *[[Shift the axis of dispute]] | ||
{{ref}} | {{ref}} | ||