| This dissertation consists of three essays examining the implications of human psychology for economic behavior and market outcomes.;The first chapter formalizes a model of people's inattention to choices and actions in dynamic decision environments. The model provides a new foundation for habit-forming behaviors, and also generates surprising implications for how deadline length can affect task completion rates. I report results from two "extra-lab'' experiments that jointly vary reminder cues and payoff parameters to test and confirm the predictions of the model. I also embed this model of consumer behavior in various market settings and study how firms structure reminder advertising campaigns, consumer rebates, and free-trial offers.;The second chapter, coauthored with Hunt Allcott, examines the frequently made hypothesis that consumers are imperfectly informed about or inattentive to the energy costs associated with energy-using appliances. We study two field experiments that provide information on energy costs and product lifetimes for compact fluorescent lightbulbs vs. traditional incandescent bulbs. We then propose a general model of consumer bias in choices between energy-using durables, derive formulas for quantifying the welfare implications of such bias, and evaluate the implications of existing policies. Results suggest that moderate CFL subsidies may be optimal, but that imperfect information and inattention do not appear to justify a ban on traditional incandescent lightbulbs in the absence of other inefficiencies.;The third chapter, coauthored with Holger Herz, has its starting point in the now well-established fact that people's desire for fair transactions can play an important role in negotiations, organizations, and markets. In this chapter, we show that markets can also shape what people consider to be a fair transaction. We propose a simple and generally-applicable model of path-dependent fairness preferences, in which past experiences shape preferences, and we experimentally test the model's predictions. We find that previous exposure to competitive pressure substantially and persistently reduces subjects' fairness concerns, making them more likely to accept transactions in which they receive a low share of the surplus. But consistent with our theory, we also find that past experience has little effect on subjects' inclinations to treat others unfairly. |
