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

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    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.
    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
    ISBN (Print)9780190650230
    Publication statusPublished - 2017
    SeriesOxford Handbooks in Business and Management

    Bibliographical note

    Published online 3 February 2015


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

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