Question

If an investor buys a stock based in the recommendation of a broker because the broker's previous recommendations have been profitable, the broker possesses which type of power?

a. Referent
b. Legitimate
c. Informal authority
d. Charismatic
e. Expert

Answer 1

The broker holds expert power due to their knowledge and past performance, which the investor sees as valuable. This power comes from the broker's perceived ability to make profitable stock recommendations.

Step-by-step explanation:

The broker in this scenario possesses expert power. Expert power is based on the knowledge, skills, or expertise that an individual has, which others see as valuable or relevant. Because the investor trusts the broker's previous profitable recommendations, the broker is perceived to have expertise in stock selections.

Authority, in a broader sense, is the power that people accept because it emanates from a source they perceive as legitimate. There are different types of authority, including traditional authority, charismatic authority, and rational-legal authority. Each has a different basis for why people follow it.

For instance, charismatic authority is based on the exceptional personal qualities of a leader, while rational-legal authority is grounded in laws, written rules, and regulations. The broker's influence, however, comes from his perceived expertise and ability to make profitable recommendations, which is distinct from these other forms of authority.