Incentives
by nicole and · updated 4mo ago
Incentives
by nicole and · updated 4mo ago
andrea added 1y ago
You hire a contractor to fix your house, his incentive is to waste your money while yours isn't. You hire a financial advisor, her incentive is to get more fees. You get an investment advisor, they also want to get fees, plus a cut of the profits.
This is the principal agent problem, where the agent knows how to do something and often knows more, and you have to figure out how to trust them. Often, the biggest worry is getting ripped off, because the agents don’t mind if you lose your money or if you lose your floorboards, as the way they get paid is weighted towards the upside. The agents have a floor in terms of downside exposure, while principals like you want to be more prudent with money.
sari added 2y ago
Keely Adler added 2y ago
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