The Principal-agent relationship refers to a contractual or non contractual relationship between two persons or parties (principle and an agent) whereby the principle authorise the agent to act on his or her behalf to establish a legal relationship with the third party. An agent may make non-optimal solution (irrational decision) to a problem facing him or her especially when undertaking tasks that are useful to the principle but costly to him or her. If the cost of running the project is higher on the side of the agent, the principle may undertake to compensate the agent by paying him or her more benefits or supervise the agent more keenly to protect project’s interests from those of the agent. Thus promote a more rational decision making approach.
Satisficer is a person who seeks a satisfactory solution as compared to the optimal (rational) solution. This kind of a solution is arrived at when it becomes too costly or when resources are not adequate to arrive at an optimal solution. Therefore, the decision maker tries to select solutions that meet a specific need or solutions that seems to address most of his or her needs. For example, there is a task for sewing a patch onto a military uniform. The best needle to do the sewing is a four and half (4.5) inch long needle with a three (3) millimetre eye. However, the correct needle is hidden in a hay stack along with 2000 needles of different sizes. It will be extremely hard, waste of energy and time to find the exact needle. Therefore, a satisfying solution is to pick the first needle that can sew the patch.
Tricky Dicky Enterprises is considering the possibility of expanding its factory premises. Local elections will soon take place and the firm assume that pay-offs will vary as follows depending on the outcome of the election:
Assume that the probability of Party A winning the