Business Decision-making: Understanding Rational Actor Paradigm, Employee Incentives, Bonus Caps, an

The Meaning of Rational Actor Paradigm

1. Discuss the meaning of the rational actor paradigm. Come up with a situation from someone’s Company where application of the Paradigm would have improved decision making or corrected a problem.

2. Why is it important for employee incentives to be aligned with the organizational goals. Pick a Company from someone in your group. What are the organizational goals and are incentives aligned with these goals?

3. Would a bonus cap for executives be a ‘bad’ policy for the company?

4. You observe that a company sells products at a ‘loss’. Does this make sense? Apply the Rational Actor Paradigm in order to understand whether such an action is rational.

5. Identify a contract between your Company and a supplier or a customer. Does it align the incentives of the parties? If not, suggest a change that would address the problem. Compute, in general, the profit consequences of such a change.

6. Give an example from your business experience of an unconsummated wealth transaction. Describe how you could profitably consummate it. In general what kind of profit could you earn from the transaction you picked.