People don’t walk around thinking about the principal-agent problem, and even if they do, they tend to think about a CEO who doesn't quite serve shareholders or a fund manager who doesn’t quite look out for the investor. But you and I have lived this challenge even if we don’t own shares or have funds that need managing. Any time you hire someone to act on your behalf—a lawyer, recruiter, wedding planner—you’re trusting that their idea of a good job aligns with yours. But sometimes it doesn’t. The agent often knows more than you do about the actual work. That gap requires a leap of faith.

Someone’s actually measured this gap. Economists looked at 98,000 home sales around Chicago and found something odd: when property agents sold their own homes, they sold for almost four percent more than similar homes they’d sold on behalf of clients. Funny how you try a little harder when it’s your own money on the line.

You’d find this familiar if you’ve ever gotten your house renovated. When we did our home reno a few years back, I barely looked at quotes. I know, I should have. But my sister had just moved into her flat the year before and really liked her contractor. Her in-laws hired the same person as well, and so I figured I’d do the same. Just go with them– easier right? Don’t have to run around comparing. I’ve since gone on to recommend this same contractor to a bunch of my friends too. No one in this chain did any proper “research”— the last person’s confidence was all the data we needed.

This information cascade happens when a couple of people in a row make the same call and it becomes the sensible thing for everyone after them to just follow suit. Since you can't test-drive a renovation the way you can a car, someone's word is the next best thing you've got. In a way, this tries to overcome the problem of not being able to verify the competence of the agent you’ve hired.

Here’s the thing about cascades, though: you think the contractor’s getting more verified with each new testimony but really, five confident people doesn’t mean five times the certainty. My sister was the first to hire the contractor—every subsequent person just trusted the last one in the chain. In a way, confidence moves through a group faster than evidence does.

Online reviews try to formalise this into something searchable like a star rating or X number of verified purchases. But this works best where the experience is roughly the same for everyone, like a restaurant meal or a flight. A contractor is different: the very same firm can bring your Batcave dreams to life but mess up someone else’s boho Scandi chic.

Word of mouth or reviews, though—neither gets you through the renovation itself. Now that’s when you find out what you’re really made of. My neighbour was renovating her place and her guy came recommended too: good Google reviews, a decent portfolio online—“His cottagecore looks different from other people’s cottagecore,” she told me confidently a few months ago—and her husband liked that they support the same soccer team. All the right signals. 

Then three weeks in, he said that the walls needed extra insulation. (Nobody needs to insulate the insulation that’s already there.) She said no. The second time– some extra cabinetry for the storeroom—she pushed back a bit, and at least got the price down. Then he brought up double-reinforced glass and she just didn’t have it in her anymore. Did she really need double-reinforced glass for her living room? Probably not. Did she know that? Yes. But she had already put up with more dust and mess than she had accounted for and just wanted everything to be over. So she gave in. She said she was too tired to argue. 

Most contractors are not like that—sometimes, old wiring really needs to be replaced. But some contractors can be genuinely predatory, and we’ve all heard our fair share of horror stories. They know exactly which vulnerability to exploit, and will wait until the contract is signed and the work has started before saying anything. By then, you’ve paid a deposit and a wall has been hacked, and switching to someone else would be expensive. You’ve lost your strongest leverage, the ability to walk away cheaply. The higher the switching cost, the weaker your position is. The incentives between the principal and the agent have started to drift apart, and the dishonest contractors know the tables have turned.

The thing is, renovating a home is hard. And exhausting. And you can’t wait for it to wrap up. But there’s a different kind of problem waiting at the very end of it, and it has nothing to do with being tired. Take my cousin—the paint on several walls started cracking and peeling about two months after she moved in, well within her contractor’s defect period. This is not a huge job, just a touch-up. But when she asked her contractor to come back and fix it, she was told there’d be "transport charges" and “must wait until next month because got other jobs”. She messaged him the next month. He said he’d get to it. Weeks passed. He said he’d get to it again. More weeks passed.

My cousin’s contractor isn’t being malicious. She’s just not his priority anymore. While the renovation was ongoing, there was every reason to stay in her good books—more payments to come, more decisions that he can still influence, maybe even a referral from a happy client mid-project. But once the final payment clears, most of that disappears. This is the point at which the tether between the principal and agent is at its slackest—not gone entirely, since he’d still like her to say nice things about him, but slack enough that it doesn’t quite compete with a client paying him today.

This is the same logic that makes repeat relationships trustworthy. People—and businesses—tend to treat you well for as long as they expect to keep dealing with you. We know this as the shadow of the future: cooperation holds up when both sides expect to meet again, and starts to fray the moment that expectation fades.

Which is why the very last stretch of a renovation—the defects, the touch-ups, the small things you only notice once you’ve moved in and the last payment’s cleared—often gets the least care of the entire process. The Soviets had a word for something similar: shturmovshchina—factories cutting every corner in the last days of a quota, because bonuses depended on hitting the production target, not on what condition the products arrived in.

I wonder if the renovation journey is really just a series of trust falls and you cross your fingers that each time, something/someone catches you. Before you hire a contractor, you're trusting other people’s word. Once you’re committed, you’re trusting the payment schedule. And once the final payment clears, you’re trusting that you’re still a priority even though you have nothing left to pay.

As part of our renovation, we got a storage drawer installed in our bathroom. It’s a good one—large, well-made, opens, and closes smoothly. But when you look at it in daylight, you can just about make out that it’s the wrong shade of white. When I found out, I probably could have asked for it to be redone but I didn’t. By then, I’d already recommended the contractor to my friend.

Serene Koh is a behavioural scientist and director of the Behavioural Insights Team in Singapore. She also teaches behavioural science at the National University of Singapore.

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