What are agency problems?

Agency problems happen when someone is supposed to do one thing, but ends up doing something else because it benefits them more.

Imagine you're sharing a bag of candies with your friend. You both agree that you’ll split the candies evenly, fair share. But then, you notice there are extra candies at the bottom of the bag. Instead of giving your friend their fair share, you take all the extra ones for yourself. That’s an agency problem: your friend was supposed to help you share fairly, but you took advantage of the situation because it made you happier.

Sometimes people have different goals. In this case, you want more candy than your friend does, that's your personal goal. But your friend’s job is to make sure everything is shared equally. When someone’s personal goal doesn’t match their job, an agency problem can pop up.

It’s like when a teacher lets kids choose their favorite snacks for lunch, but the teacher secretly likes cookies more than anything else, they might end up taking all the cookie boxes for themselves!