Principal-Agent Dilemma

    A conflict of priorities exists between a person, entity, or group (principal) and a party who has been authorized to act on their behalf (agent) (agent). The dilemma arises from misaligned incentives, which occur when an agent is incentivized to act in their own benefit rather than the benefit of the principal or those they are enacted to represent. The principal-agent dilemma is common in business, finance, and markets, and it frequently necessitates changing a system’s reward structure to balance the priorities of both sides — the primary goal of incentive alignment.