Bounded Rationality in Principal-Agent Relationships
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Mathias Erlei
Abstract
We conducted six treatments of a standard moral hazard experiment with hidden action. The behavior in all treatments and periods was inconsistent with established agency theory. In the early periods, behavior differed significantly between treatments. This difference largely vanished in the final periods. We used logit agent quantal response equilibrium (LAQRE) as a device to grasp boundedly rational behavior and found the following: (1) LAQRE predictions are much closer to subjects’ behavior in the laboratory; (2) LAQRE probabilities and experimental behavior show remarkably similar patterns; and (3) including social preferences in LAQRE does not better explain the experimental data; (4) LAQRE cannot explain the contract offers of some players who seem to choose some focal contract parameters.
© 2019 by Walter de Gruyter Berlin/Boston
Articles in the same Issue
- Bounded Rationality in Principal-Agent Relationships
- Blindfolded vs. Informed Ultimatum Bargaining – A Theoretical and Experimental Analysis
- How to Attract an Audience at a Conference: Paper, Person or Place?
- The Handelsblatt Rankings 2.0: Research Rankings for the Economics Profession in Austria, Germany, and Switzerland
- Handelsblatt Ranking and Journal Quality: A Cautionary Note
- Index: Volume 18, 2017
Articles in the same Issue
- Bounded Rationality in Principal-Agent Relationships
- Blindfolded vs. Informed Ultimatum Bargaining – A Theoretical and Experimental Analysis
- How to Attract an Audience at a Conference: Paper, Person or Place?
- The Handelsblatt Rankings 2.0: Research Rankings for the Economics Profession in Austria, Germany, and Switzerland
- Handelsblatt Ranking and Journal Quality: A Cautionary Note
- Index: Volume 18, 2017
