yego.me
💡 Stop wasting time. Read Youtube instead of watch. Download Chrome Extension

Principal-Agent Problem: Act Like an Owner


2m read
·Nov 3, 2024

We spoke earlier about picking a business model that has leverage from scale economies, network effects, zero marginal cost of replication. But there were a few other ideas on the cutting room floor that I want to go through with you.

The first one was the principal-agent problem. So, mental models are all the rage. Everyone's trying to become smarter by adopting mental models. I think mental models are interesting, but I don't think explicitly in terms of a mental model checklist. I know Charlie Munger does, but that's just not how I think. Instead, I tend to focus on the few lessons that I've learned in life over and over that I think are incredibly important and seem to apply almost universally.

One that keeps coming up from microeconomics, because as we've established, macroeconomics is not really worth spending time on, is what's called the principal-agent problem. Principal in this case is principal with the "P" al, not "ple." So, it's not a principal that you follow; it's a principal who is a person who is an owner. A principal is an owner, and an agent is the person who works for the owner. So, if you can think of it as an employee, the difference being a founder and an employee.

I can summarize this by a famous quote that either was said by Napoleon or by Julius Caesar. It's generally attributed to either one, but he said, "If you want it done, then go; if not, then send," which is basically saying if you want to do something right, do it yourself, because other people just don't care enough.

Now, the principal-agent problem pops up everywhere in microeconomics. The way that they try to characterize it is that the principal's

More Articles

View All
Howard Marks: A Once in a Lifetime Financial Event is Here
Last 14 years were really quite idyllic, um, in the economy and in the market. We had the longest bull market in history, the longest economic recovery in history. Uh, we set a lot of records in many ways. Living was easy, interest rates were low, and com…
Why you shouldn't vent anger (according to science and philosophy)
We may all be familiar with the irritation arising when something doesn’t go as we wish. We feel our heartbeat increasing and our muscles tensing. Our frustrations build up to the point of physical shaking, and we feel we’re about to explode. And so, when…
15 Expensive Things That Are NOT Worth the Money
You dream about becoming rich so you can afford everything you ever wanted, only to find out that you hate having to take care of so many things. Most expensive things are just a clever way to separate rich people from their money. If last Sunday, we look…
Worked example: using recursive formula for arithmetic sequence | High School Math | Khan Academy
We are told b of 1 is equal to negative 7, and b of n is equal to b of n minus 1 plus 12. They’re asking us to find the fourth term in the sequence. So, what we have up here, which you could use a function definition, it’s really defining the terms of a s…
Butterfly Farming IS AMAZING - (Full Life Cycle) - Smarter Every Day 96
Hey, it’s me, Destin. Welcome back to Smarter Every Day! I did a video and I put Mr. John, the butterfly farmer, in it, and you had a bunch of questions about butterfly farming. So, we’re going to do a video about butterfly farming. Is that okay with you?…
Identifying key features of exponential functions | Algebra 1 (TX TEKS) | Khan Academy
We’re told to consider the exponential function f where f of x is equal to 3 * 12 to the power of x. Now they ask us several questions about the y-intercept of f, the common ratio of f, and what is the equation of the asymptote of f. So pause this video a…