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Agency Dilemma

In economic theory, there’s a famous dilemma known as the agency dilemma (also known the principal-agent problem). The agency dilemma describes a situation in which the interests of the principal (the owner of an operation who enlists an agent) and the agent (someone empowered by the principal to act on behalf of the principal) are in conflict with each other.

Consider psychologist Stanley Milgram’s infamous study on obedience and authority that was conducted in the 1960s:

In this study participants were asked by an experimenter to deliver increasingly high voltage shocks to someone in another room who, unbeknownst to the participants, was an actor instructed to scream with each shock before eventually going silent.

Despite every single participant questioning the experiment, most of them continued to administer the shocks after being reassured by the experimenter.

The participants were in what Milgram describes as an agentic state — a state in which people follow the orders of others while deferring all responsibility to the person giving them the orders.

Despite the experiment seeming ethically questionable, in the minds of most participants the consequences of the study fell on the shoulders of the experimenters and therefore wasn’t their problem.

They were just following orders. They were perfect agents. There was no agency dilemma.

Recent fiascos that were not controlled experiments and far more malignant like Volkswagen’s Dieselgate, and Boeing’s toxic culture that arguably played a role in the premature and deadly deployment of its new 737 MAX plane, are also examples of perfect agency.

In both cases there were likely teams upon teams of perfect agents who were following questionable orders. Again, no agency dilemma.

Suffice it to say, being agentic — being a perfect agent — doesn’t necessarily guarantee success for the agent or (ironically) the principal calling the shots.

An agent in complete defiance of the principal is probably not ideal either.

So how, then, should principals and agents work together to optimize outcomes?

For starters, a principal should be interested in the interests of her agents. Principals and agents are humans alike and multiple opinions can sometimes save both the principal and agent from making a catastrophic decision based on problematic logic.

Secondly, all agents should endeavor to embody the mindset of a principal. The more you can think, speak, and act and as if you were the principal, the more likely you are to take action when its valuable and withhold action when it’s not.

Agency doesn’t have to problematic; it can also be a life-saving, business-saving, future-saving asset.

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William Liao

William Liao

Taiwanese American, daily blogger of ideas about impactful work in service of others, photographer (ephemera.photography)