In standard contract-theoretic models, the underlying assumption is that agent types differ in their preference or cost parameters, and the principal's objective is to design contracts in order to screen this type. We study a contract-theoretic model in which the heterogeneity among agent types is of a "cognitive" nature. In our model, the agent has dynamically inconsistent preferences. Agent types differ only in their degree of "sophistication", that is, their ability to forecast the change in their future tastes. We fully characterize the menu of contracts which the principal offers in order to screen the agent's sophistication. The menu does not exclude any type: it provides a perfect commitment device for relatively sophisticated types, and "exploitative" contracts which involve speculation with relatively naive types. More naive types are more heavily exploited and generate a greater profit for the principal. Our results allow us to interpret real-life contractual arrangements in a variety of industries. Copyright 2006 The Review of Economic Studies Limited.

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This paper studies market competition when firms can influence consumers' ability to compare market alternatives, through their choice of price "formats".We introduce random graphs as a tool for modeling limited comparability of formats. Our main results concern the interaction between firms' equilibrium price and format decisions and its implications for industry profits and consumer switching rates. In particular, firms earn max-min payoffs in symmetric equilibria if and only if the graph that represents the comparability between formats satisfies a generalized regularity property, which we interpret as a form of "frame neutrality". The same property is necessary for equilibrium behavior to display statistical independence between price and format decisions. We also show that narrow regulatory interventions that aim to facilitate comparisons may have an anti-competitive effect.

We study a market model in which competing …rms use costly marketing devices to in ‡uence the set of alternatives which consumers perceive as relevant. Consumers in our model are boundedly rational in the sense that they have an imperfect perception of what is relevant to their decision problem. They apply well-de…ned preferences to a "consideration set", which is a function of the marketing devices employed by the …rms. We examine the implications of this behavioral model in the context of a competitive market model, particularly on industry pro…ts, vertical product di¤erentiation, the use of marketing devices and consumers'conversion rates.