One Method That Businesses Use to Overcome the Principal-Agent Problem

question 77

Multiple Choice

One method that businesses use to overcome the principal-agent problem is to:

• A) not require the board of directors to oversee management.
• B) not reward executives and managers who make poor decisions.
• C) not give stock options to management.
• D) not give employees a stake in the business.

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Definitions:

Intuitive Judgments

Decisions made quickly and without conscious reasoning, relying on gut feelings and automatic cognitive processes.

Quick

The ability to do something or the act of doing something with speed or within a short time frame.

Representativeness Heuristic

A cognitive shortcut that involves judging the probability of an event by comparing it to an existing prototype that already exists in our minds.

Prototype

An original model or first form of something from which later versions are patterned; in cognitive science, it refers to a typical example of a category.