8 Questions
What is one of the causes of agency problems?
The agent acting independently from the principal for personal gain
How can transparency help reduce agency problems?
By ensuring decisions are agreed upon by both parties and are fair
What is one way to motivate an agent according to the text?
Introducing bonuses for the agent
What might cause a conflict of interest between a principal and an agent?
The agent acting in their own best interest rather than the principal's
How can setting specific restrictions on agency power help reduce agency problems?
By increasing the principal's confidence in their agent
What action by an agent might lead to a confidentiality breach?
Engaging in insider trading using principal's information
How does introducing bonuses affect an agent's decision-making according to the text?
It motivates agents to make decisions that benefit the principal
Why might an agent act against the recommendations provided by the principal?
'The agent wants to obtain previously agreed upon incentives or bonuses'
Learn about the foundational concept of Expected Utility Theory in finance, developed by John von Neumann and Oskar Morgenstern, which guides decision-making under uncertainty. Explore the differences between risk and uncertainty in decision-making.
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