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Putting a Realistic Theory of Mind into Agency Theory: Implications for Reward Design and Management in Principal‐Agent Relations
Author(s) -
Foss Nicolai,
Stea Diego
Publication year - 2014
Publication title -
european management review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.784
H-Index - 32
eISSN - 1740-4762
pISSN - 1740-4754
DOI - 10.1111/emre.12026
Subject(s) - principal–agent problem , sensemaking , agency (philosophy) , principal (computer security) , trace (psycholinguistics) , interpersonal communication , epistemology , value (mathematics) , management theory , psychology , social psychology , knowledge management , computer science , management science , economics , management , corporate governance , philosophy , linguistics , machine learning , operating system
Agency theory is one of the most important foundational theories in management research, but it rests on contestable cognitive assumptions. Specifically, the principal is assumed to hold a perfect (correct) theory regarding some of the content of the agent's mind, while he is entirely ignorant concerning other such content. More realistically, individuals have some limited access to the minds of others. We explore the implications for classical agency theory of realistic assumptions regarding the human potential for interpersonal sensemaking. We discuss implications for the design and management of rewards, and trace implications for value creation in principal‐agent relations.