Why Does It Matter That Beliefs and Valuations Be Correctly Represented?
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.
|Date of creation:||Jul 2003|
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"On the Determination of Subjective Probability by Choices,"
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- Colin F. Camerer, 1997. "Progress in Behavioral Game Theory," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 167-188, Fall.
- Karni, Edi & Postlewaite, Andrew, 2005. "David Schmeidler," Games and Economic Behavior, Elsevier, vol. 50(1), pages 1-2, January.
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