1 min read

The Principal-Agent Problem

Who in their right mind buys single-ply toilet paper?  There’s not much difference in price and the experience is totally different.  Only someone buying toilet paper for someone else would buy single-ply toilet paper.

This is the Principal-Agent Problem.  How people act on another's behalf when their interests are not aligned.

It is “a conflict in priorities between a person or group and the representative authorized to act on their behalf.  An agent may act in a way that is contrary to the best interests of the principal.”

The Principal-Agent Problem exists whenever there’s delegation.  Whenever you hire someone, whenever you ask someone to do something, whenever someone represents you, explicitly or implicitly.

Besides toilet paper, another example is education.  At universities, professors and grad students teach undergraduate students.  But most professors teach in order to do research and grad students just want to get their degree.  Neither are incentivized to be great teachers.  If you don’t realize this, you might think you’re getting a great education when you’re just getting lectured by someone going through the motions.  You can’t assume someone is looking out for your best interests.

Where does this affect you?  Where have you given up initiative?  At the end of the day you have to live your life.  Off-loading responsibility to other people without accountability isn’t solving the problem.  It’s your duty to yourself to make sure things are done the right way.  You should be wary when other people want to make your decisions for you.  

Don’t let someone else buy you single-ply toilet paper.