Modeling employees' deviant behavior and employers' reactions: an interdisciplinary approach using principal-agent and prospect theories

In this paper we introduce mathematical models to address deviant behavior theory and practice. We examine only employee behaviors and employer reactions, but this framework is innovative and parsimonious, in that it models employer responses to employee’s behavioral deviance based on the dual application of principal-agent theory and prospect theory. After explaining the model, we examine boundary conditions and limitations and propose a series of applications to illustrate the potential usefulness of the model.