Last night, my car sensors showed that one of the tires was faulty. I discovered that the front right tire had a nail in it, so I went to a mechanic to get it fixed. I told him about the nail and then got busy replying to an email on my phone. A few minutes later, I noticed that he had fixed the front left tire, which was working perfectly. When I pointed out the obvious and showed him the nail on other tire, he didn’t admit to his mistake.
This behavior wasn't new to me. A few years ago, an investment advisor told me to invest in a certain fund that turned out to be a scam. I later found out that he received a 2% commission from the fund, so even if I lost money, he still gained. In fact, his incentives were not aligned with mine at all. The same was true with the mechanic; he was focused on maximizing his income, not solving my problem.
A similar situation happened when I took a relative to a doctor at Fortis Hospital in India. She complained of chest pain. The doctor created panic and within two minutes of examining her, declared it was a severe heart attack. The receptionist told us to deposit thousands of dollars to start the bypass surgery. Fortunately, I knew the senior doctor who had trained this cardiologist, so he made a call and the doctor went out of his office. The nurse then told us that our relative had a gastric problem. Imagine, the doctor was going to perform a bypass on a patient with gas!
This is known as principal-agent problem. It is a situation in which one person or entity, called the principal (e.g. I), hires another person (e.g. mechanic), called the agent, to perform a task on their behalf. The problem arises when the interests of the principal and the agent are not aligned, and the agent acts in their own best interest instead of the principal's. This can lead to actions by the agent that are not in the best interest of the principal.
How to overcome the principal-agent problem?
Avoid going to an agent unless absolutely necessary. E.g - avoid going to a travel agent when you can apply for a visa yourself.
Doubt is good. Don’t take them at the face value. If someone’s income is based on giving you advice or solutions, you better be discerning.
Go to multiple agents. Take quotes from others. Compare. Bargain. Negotiate hard. You’ll get a deal.
Rely on referrals and reputation. A bad doctor or mechanic wants you once and make his moolah. A good one wants you for life. So they’d avoid misguiding you.