Managing Asymmetric Information Effects in Decision-Making Productivity-Based Model

Abstract

Making the correct decision requires the possession of sufficient information regarding each alternative possible solution. Nevertheless, the investigation of all possible solutions to select the best alternative is complex and expensive. This article addresses the Principal-Agent problem, where the key feature is asymmetric information. Asymmetric information approaches the decision investigations in a business context, where one participant possesses more or better information than the second party. The authors consider the case where the principal is more knowledgeable than the agent. The article proposes a formal model for assessing agent competence based on his productivity and the principal assessment. The model output helps the agent to make the correct decision.