- Q1: Who made the bad decision?
- Q2: Did they have enough information to make a good decision?
- Q3: And the incentive to do so?
- S1: Let someone else make the decision, someone with better information or better incentives.
- S2: Give more information to the current decision-maker.
- S3: Change the incentives of the current decision-maker.
The economist has an article on the history of this problem:
In business and finance, this is known as the “principal-agent” problem. Shareholders employ managers to run a company; investors use fund managers to look after their savings. That makes sense. It allows us to take advantage of the expertise of others, and of economies of scale in fund management (it costs little more to look after $10m than $1m). But it is extremely hard to align the interests of principals and agents exactly.
To spoil the ending, the solution is always "it depends."