Decision Making with Asymmetric Information

Abstract

Every day individuals make numerous choices. What is important for making the 
\nright choice is that individuals have good information about the consequences of the 
\ndifferent alternatives. However, investigating the full consequences of the different 
\nalternatives is complicated and costly. Consequently, individuals sometimes do not 
\npossess all relevant information to take a decision. 
\n
\nThis thesis discusses models in which an agent decides whether or not to perform 
\na task on behalf of the principal. A key element in the models we consider is 
\nincomplete and asymmetric information. Broadly, the thesis can be split up into 
\ntwo parts. The first part of the thesis deals with models in which the principal is 
\nbetter informed than the agent. The agent has to decide whether or not to perform 
\na task, but lacks information about his ability. We analyze how the agent makes 
\na self-assessment of his ability, based on appraisals of others (the principal) and 
\nexperience. Based on this self-assessment the agent takes a decision. The second 
\npart of the thesis deals with models in which the agent is better informed than the 
\nprincipal. On behalf of the principal the agent takes a decision about a project. 
\nSometimes agents do not act in the interest of the principal. We analyze how the 
\nprincipal can use retention contracts to discipline the agent. 
\n
\nIn the remainder of the Introduction we discuss the two parts of the thesis and 
\nwe provide an overview of the chapters of this thesis.