Reference no: EM133074241

Michael Jensen is in academic who specializes in agency theory/conflict. Prior to Enron collapsing, he suggested that the intrinsic value of Enron was about $30 billion while at the time it had a market value of approximately $70 billion. He described Enron as having been a 'good viable business' and a 'major innovator'. In this respect, he asserted that its senior managers' attempt to defend the stock's $40 billion overvaluation was a mistake that effectively destroyed $30 billion of intrinsic value. He notes that Enron's executives faced a choice. On one hand they could helped lower the market's expectations of the company. On the other hand, they could try to use accounting manipulations to fool the market. In this respect, Jensen asserts that that Enron's managers gambled with the firm's reputation and integrity which was in his belief the firm's primary asset.

Discuss the psychological issues associated with Enron's decision task as described by Jensen.