ECON5026 game theory
博弈论essay代写 Consultants of Australian financial services companies are usually affected by financial and non-financial incentives. Because
Abstract 博弈论essay代写
The incentive structure in financial services firms is currently link the remuneration of employees and executives directly to financial metrics, the sales amount is always the most important figure to look at. This is similar to the long-held beliefs that companies should chase for maximising the profit, that is to maximise the shareholders’ interest, shareholders focus on total shareholder return and other financial metrics such as EPS, ROE or dividends. This is the only way to align executive pay to long-term shareholders’ interest.
Employees and managers in financial services firms make efforts on sales and effort, and not willing to “waste” their time on customer or employee engagement, because such things are not benefit for their remuneration, these seems inefficient effort. This conflicts of interest and information asymmetries cause subconscious and unintentional nature of biases, they cannot provide professional services as they should do.
Incentive structure in financial services firms leading sales “all important”
First of all is about interests. Not only the entities’ profit, but also the individual’s profit (Sunita, 2018). In early western capitalism, from the perspective of pure economics, the behavioral goal of enterprises was to maximize profits. Although the recent economics takes into account the ethical issues and introduces the concepts of goodwill and social responsibility into the standards of enterprise success, many financial services firms still take profit maximization as the main goal. For those salesmen, Baumol put forward the "sales maximization hypothesis" in his book Enterprise Behavior, value and growth published in 1959. He believes that under the minimum profit level allowed by shareholders, enterprises pursue sales maximization (William, 1959). 博弈论essay代写
The main reason is that the salary of managers has a direct positive correlation with sales or sales.
In addition, the decline of sales will make the enterprise lose some customers and reduce the ability of the enterprise in all aspects, such as the financing ability of the capital market and the reputation among competitors. Marius once put forward the "growth maximization hypothesis", which holds that if managers believe that the growth of enterprises is related to their own interests, they will take the pursuit of enterprise scale as the goal of maximizing their personal interests. Williamson once put forward the "manager utility hypothesis", which holds that managers will not seek the maximization of shareholders' interests, but only the maximization of managers' interests.
Second is about the confusion of roles. Sales has become very important, but the role of front-line service personnel is very chaotic (Sunita, 2018). Normally, sales cannot directly provide consulting services, and consultants themselves should not directly sell the company's products or services to customers, so as to effectively avoid providing unprofessional suggestions. Many financial services companies in Australia reward improper behavior, which is wrong. 博弈论essay代写
Incentive, bonus and commission schemes across the financial services industry measure sales and profits, but do not comply with laws and appropriate standards. Incentives have been provided and remuneration has been paid, regardless of whether the sales are carried out in accordance with the law or whether profits are obtained in accordance with the law. People who are rewarded will be rewarded whether they should do what they do or not. This also leads to how the incentive structure of financial service companies makes sales "all important".
Third is the unequal relationship between financial services firms and customers makes customers have lower power. 博弈论essay代写
Financial services companies and salespeople can solve problems in their own way, and consumers have little right to compete with it, which is largely due to information asymmetry (Sunita, 2018). The company can set the transaction terms as needed. As long as they complete the sales, they have the dominant power in the subsequent transaction terms and the signing of the final amount. Consumers usually lack detailed understanding or cognition of the transaction. Without understanding, consumers have little right to negotiate terms.
Consumers have relatively narrow information channels. They learn about products or services by contacting the salesperson of a financial service company, but they can't have enough time or energy to understand and compare all similar products and services on the market, so it's difficult for them to make the most wise choice. On the other hand, most consumers don't know enough about the products of financial service companies. There are some professional theories or financial professional problems that consumers can't understand very deeply. Therefore, in the relationship between financial service companies and consumers, there is a very obvious imbalance of rights and cognition between those who provide products and services and those who obtain products and services.
Finally, the incentive structure of financial companies has never mentioned what punishment will be imposed if employees do not pay attention to customers' feelings.
This incentive structure will only reward employees who bring huge sales to the company, and there is no dimension to assess whether these employees provide appropriate and professional services (Omran, Kronick, 2019). Even if employees provide inappropriate and unprofessional services, they will not be punished because they have brought huge benefits to the company. For financial service companies, they will be punished only when they really violate the law, but they are often not properly investigated.
Only when financial services companies believe that misconduct will be found, condemned and fairly punished will they stop misconduct. Misconduct in financial services companies, especially those that have brought profits to the company, cannot be prevented by requiring those found to have done wrong to pay only compensation, because the consequences are far from just money. It is one thing for a wrongdoer to compensate the injured; It is another matter to investigate the responsibility of the perpetrators. Financial service companies often confuse the two. It is not enough to only ask for compensation for the economic losses of the victims or return the profitable income to the customers.
Evidences to prove 博弈论essay代写
Consultants of Australian financial services companies are usually affected by financial and non-financial incentives. Because they want to obtain higher income, they are unable to maintain their objectivity and impartiality in communicating with customers. Therefore, they are easy to explain facts, error prone memories and other errors subjectively, or provide some biased suggestions. The most serious thing is that many of their conflicts of interest affecting consultants occur subconsciously and unintentionally. Consultants do not realize that their own suggestions are biased, they still believe that they can keep considerable and unbiased. Even if they review their ideas and behaviors, they can't find their mistakes.
One powerful proof in the real world is Andersen accounting firm. It can be taken as a typical case. In order to obtain higher profits and maintain the relationship with Enron, Andersen accounting firm cannot give reasonable suggestions for its long-term development from the perspective of customers. The conflict of interest caused by Andersen's incentive structure finally affects the financial consultant to give correct and fair opinions, It eventually led to Enron's repeated mistakes, which could only be ended by bankruptcy (Asthana, Balsam & Kim, 2009). 博弈论essay代写
Among more than 20000 major customers of Andersen worldwide, Enron is its second largest customer.
Therefore, Enron plays a vital role in Andersen's revenue. If Enron loses this valuable guest, its sales will be greatly reduced. Most of the audit work of Enron company is completed by Andersen. In 2000, Andersen received about US $52 million from Enron, including US $27 million from consulting services. An auditor should not only be neutral in substance, but also be independent in form. However, the consultants of Andersen accounting firm were blinded by the interests and have been helping Enron hide its debts.
With the connivance of Andersen, Enron transferred hundreds of millions of dollars of debts to the books of affiliated companies to falsely report the company's profits. Andersen learned that after the U.S. Securities and Exchange Commission investigated the financial situation of Enron, in order to help Enron hide the truth, Andersen secretly destroyed the financial data retained by Enron in Andersen. Their behavior is not to help customers develop for a long time, but to some extent condone customers' mistakes and enhance the impact of these mistakes.
Another proof is from another industry but the similar theme research. 博弈论essay代写
In the research done by SAH and Loewenstein in 2010, they proved that doctors' sense of right to obtain benefits from the industry is subjective and can be easily manipulated through implicit or explicit rationalization provided to doctors. There is not much difference between the doctor industry and the financial service industry in essence.
Therefore, practitioners in the financial service industry are also likely to convince themselves that the products they charge commission are indeed the best, and the customers they recommend to invest will also benefit from these investments. Financial industry practitioners do not have an in-depth understanding of the bias and benefits of conflicts of interest. Even if they repeatedly show that it is very important to maintain fairness, once such conflicts of interest occur, as the experimental data show, it is difficult for these financial industry consultants to give customers truly correct and objective opinions.
References
Asthana, S. , Balsam, S. , & Kim, S. . (2009). ‘The effect of Enron, Andersen, and Sarbanes-oxley on the us market for audit services’. Accounting Research Journal, Vol.22, No. 1, pp. 4-26.
F Omran, & Kronick, J. . (2019). ‘Productivity and the financial services sector – how to achieve new heights’. C.D. Howe Institute Commentary. 博弈论essay代写
Krasa, S. , & Villamil, A. P. . (1992). ‘Monitoring the monitor: an incentive structure for a financial intermediary’. Journal of Economic Theory, Vol. 57, No. 1, pp. 197-221.
Sunita Sah. (2018). Conflicts of interest and Disclosure[online]. [Viewed on 20 Oct 2021]. Available from: https://financialservices.royalcommission.gov.au/publications/Documents/research-paper-conflicts-interest-disclosure.pdf
Royal Commission into Misconduct in the Banking (2019)[Online]. Superannuation and Financial Services Industry. Viewed on 21 Oct 2021. Available from: https://www.royalcommission.gov.au/banking
William Baumol. (1959). Entrepreneurship: Productive, Unproductive, and Destructive[Online]. Viewed on 19 Oct 2021. Available from: 博弈论essay代写 https://www.academia.edu/37639965/William_Baumols_Entrepreneurship_Productive_Unproductive_and_Destructive
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