Explain What the Principal-Agent Problem Is, and Discuss Evidence of Its

question 105

Essay

Explain what the principal-agent problem is, and discuss evidence of its existence in the banking industry in the United States.

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Definitions:

Effort Justification

The phenomenon where people attribute a greater value to outcomes they have put effort into achieving, regardless of the actual value.

Cognitive Dissonance Theory

A psychological theory that suggests discomfort arises when an individual holds contradictory beliefs, values, or attitudes, leading them to change one to reduce the dissonance.

Long-term Relationships

Romantic or platonic connections between individuals that are maintained over a prolonged period, often characterized by mutual support and commitment.

Cognitive Dissonance Theory

A theory that suggests an uncomfortable tension arises from holding contradictory cognitions (e.g., beliefs, attitudes) simultaneously, leading to efforts to reduce the dissonance.