Abstract
Even though it is generally agreed that human decisions are risk averse, it is also known that estimating a decision maker’s utility accurately is extremely difficult. In this paper, we consider the salesforce incentive and inventory planning problem where the exact value of the agent’s risk attitude is the agent’s private information. It is shown that the firm should offer a lower commission rate to a salesperson that is more risk averse, while a higher base salary is not guaranteed.
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