If an Agent Is Risk Averse and a Principal Is

question 24

Multiple Choice

If an agent is risk averse and a principal is risk neutral, and if the agent pays the principal a fixed fee,

• A)all risk is eliminated.
• B)the risk neutral person bears all the risk while the risk averse person bears none.
• C)the risk averse person bears all the risk while the risk neutral person bears none.
• D)the principal and agent share risk equally.

---

Definitions:

Supported

Refers to something that is upheld or backed by evidence, resources, or systems.

Dichotomy Corollary

A principle within George Kelly's personal construct theory that states individuals naturally interpret experiences through bipolar constructs, like good vs. bad or happy vs. sad.

Bipolar

A psychiatric disorder characterized by significant mood swings, including periods of depression and periods of mania or elevated mood.

Constructs

Psychological concepts or categories used to understand and interpret the world, often unique to each individual, as proposed by George Kelly.