ACCY 302 Study Guide - Midterm Guide: Decision-Making, Adverse Selection, Moral Hazard
14 Mar 2018
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Nature of man: describes models that can be used for predicting behavior. Political (perfect agent) model: humans seek to maximize public good over individual needs. Sociological (social victim) model: humans are product of environment/customs. Psychological (hierarchy of needs) model: human needs must be satisfied in order. Economic (money maximizer) model: not willing to trade money for anything else. Every individual is evaluator: have ordered preferences and can make transitive substitutions. Wants are unlimited: prefer more goods to less. Every individual is maximizer: constrained to satisfying our wants (only 24 hrs in a day) Every individual is resourceful: creative in environment to get what we want. Implications of remm model: how we pay managers matters. To design effective performance measurement and control systems. Accounting is system used to collect and process info and report that to decision- makers. Principals = shareholders/lenders (want agents to act on their behalf)
