We study a seller's optimal pricing and inventory strategies when behavioral (non-pecuniary) motives affect consumers' purchase decisions. In particular, the seller chooses between two pricing strategies, markdown or everyday-low-price, and determines the optimal prices and inventory level at...

Psychological and emotional concerns are integral parts of human decision making, and thus important driving factors for the efficiency of economic systems full of human agents. This book chapter describes how these concerns induce human decisions that deviate from the predictions of...