Opportunistic Behavior - Explained
What is Opportunistic Behavior?
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What is Opportunistic Behavior?
One major source of bounded rationality is Opportunistic Behavior by other parties. Opportunism can be defined as: self-interest seeking by an agent (an economic or business party) in a deceptive way (with guile). Or more neutrally as: flexibly adapting to changing circumstances to maximize self-interest. A simple example of opportunistic behavior is a person having a travel insurance who claims sunglasses from his insurer while he didn't lose them at all, suspecting the insurance company is unlikely to investigate relatively small claims.
What are the Types of Opportunistic Behavior?
We can distinguish a spectrum of opportunism, ranging from very clear forms, such as lying, cheating and stealing, to more subtle forms in which incomplete or (partly) incorrect information is given.
Furthermore, opportunistic behavior can be:
- Ex ante opportunism / upfront (also called adverse selection): exploiting pre-contractual information asymmetries.
- Ex post opportunism / afterwards (also called moral hazard: exploiting information asymmetries by not bearing the full consequences.
What are the Consequences of Opportunistic Behavior?
A major consequence of opportunistic behavior is that it prevents business parties from relying on each other as much as they should to achieve maximal efficiency.
Opportunism is a main factor behind the prisoner's dilemma and the free rider problem, in which someone consumes a resource without paying for it in any form (or pays less than the full cost of its production).