The paper introduces the problem of unawareness into principal--agent theory and discusses optimal incentive contracts when the agent may be unaware of her action space. Depending on the agent's default behaviour, it can be optimal for the principal to propose an incomplete contract (that keeps...

The paper introduces the problem of unawareness into principal--agent theory and discusses optimal incentive contracts when the agent may be unaware of her action space. Depending on the agent's default behaviour, it can be optimal for the principal to propose an incomplete contract (that keeps...

The available evidence from numerous studies suggests that overconfidence is a more important phenomenon in North America than in Japan. The pattern is reversed for shame, which appears to play a more important role among Japanese than North Americans. We develop a model that endogenizes these...

The available evidence from numerous studies suggests that overconfidence is a more important phenomenon in North America than in Japan. The pattern is reversed for shame, which appears to play a more important role among Japanese than North Americans. We develop a model that endogenizes these...

Evidence from psychology suggests that overconfidence is more important in North America than in Japan. The pattern is reversed for shame, an emotion that appears to play a more important role among Japanese than North Americans. We develop a model that endogenizes these differences, building on...

The paper introduces the problem of unawareness into multi-dimensional Principal–Agent theory. We introduce two key parameters to describe the problem, the extent and the effect of unawareness, show under what conditions it is optimal for the Principal to propose an incomplete or a complete...

In numerous economic scenarios, contracting parties may not have a clear picture of all the relevant aspects. A contracting party may be unaware of what she and/or others are entitled to determine. Therefore, she may reject a contract that is too good to be true. Further, a contracting party may...

This paper develops a contracting model in which the principal frames the contract when the agent is unaware of some contingencies, yet is aware that she may be unaware. We call the contract vague if the agent is still unaware of some contingencies after understanding the contract. We show that...

Whether consumers are aware of potentially adverse product effects is key to private and social incentives to disclose information about undesirable product characteristics. In a monopoly model with a mix of aware and unaware consumers, a larger share of unaware consumers makes information...