Essays on behavioral economics

This dissertation seeks to contribute to the literature on behavioral industrial organization by incorporating important psychological traits of human behavior into classic economic models. We analyze how these psychological traits can explain market observables, in a way consistent with available empirical evidence. The psychology literature has identi ed two important psychological traits that, when interpreted in economics settings, may contribute to explaining the behavior of economic agents. On the one hand, agents (workers) have a sense of self-achievement, caring about their effort being acknowledged independently of whether it is compensated for. On the other hand, agents (consumers) may suffer from temptation, being tempted to buy products they would like to commit ex-ante not to choose. In both cases, the behavior of the agents (consumers or workers) is modifi ed because options that do not result in a monetary pay-o¤, either because the options are not chosen or because the payoffs are implicit, end up mattering to the agents. Exploring the implications of such payoffs require that we depart from standard economic models as these predict that only the offers that the agent may choose matter. The fi rst chapter of this dissertation studies, within a principal-agent model, the properties of the optimal contract when workers have a sense of self-achievement. The second and third chapters study a seller's optimal pricing products when selling horizontally differentiated products to consumers who su¤er from temptatio