Hidden Cost of Controls in a Dynamic Principal-Agent Model : Reactance And Restoration of Freedom

Consumer behavior observations warrant a rationale for backlash against aggressive marketing instruments like assertive ads. This study examines the effects of a principal's control over an agent's behavior, employing a dynamic principal-agent model with hidden information on the agent's preferences for actions and controls. The study shows the condition that the agent with a similar preference for actions as the principal dares to choose the principal's unpreferred action when the principal imposes controls. The principal is worse off and may withdraw controls after observing the agent's unpreferred behavior. The results explain why assertive ads invoke good consumers' reactance, as per the psychological reactance theory: when agents' freedom is threatened, they resist it to restore freedom