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Epistemics at Work: The Theory of Mind in Principal-Agent Relations

Publication: Research - peer-reviewBook chapter

DOI

Agency theory studies the impact of and remedies to asymmetrically distributed information in principal-agent relations. Yet, it does so in a surprisingly binary manner: It assumes the principal to be perfectly knowledgeable of some pieces of information (such as the agent’s risk aversion), while others (such as the agent’s true effort exerted) are considered to be perfectly private information of the agent. Agency theory thus makes highly asymmetrical assumptions about the knowledge of principals and agents, largely neglecting the role of individual differences in the human capacity to read other people’s desires, intentions, knowledge, and beliefs—that is, to have an imperfect theory of someone else’s mind. This study explores the implications of instilling agency theory with a more realistic account of this (bounded) human capacity.

Publication information

Original languageEnglish
Title of host publicationThe Oxford Handbook of Strategy Implementation
EditorsMichael A. Hitt, Susan E. Jackson, Salvador Carmona, Leonard Bierman, Christina E. Shalley, Douglas Michael Wright
Number of pages18
Place of PublicationOxford
PublisherOxford University Press
Publication date2017
Pages101-126
Chapter5
ISBN (print)9780190650230
DOIs
StatePublished - 2017
SeriesOxford Handbooks in Business and Management

Bibliographical note

Published online 3 February 2015

    Keywords

  • Agency theory, Principal-agent Relationship, Epistemic assumptions, Theory of mind, Cognition

ID: 44394775