An experimental analysis of overconfidence in tariff choice

Katharina Dowling (), Lucas Stich () and Martin Spann
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Katharina Dowling: Ludwig-Maximilians-Universität München
Lucas Stich: Ludwig-Maximilians-Universität München

Review of Managerial Science, 2021, vol. 15, issue 8, No 4, 2275-2297

Abstract: Abstract Consumers regularly have to choose between a pay-per-use and a flat-rate option. Due to the increasing number and range of (digital) services, the frequency at which consumers have to make tariff-choice decisions to use these services has become even more prevalent. Prior work has demonstrated that consumers’ tariff choices are often systematically biased and identified overconfidence as one of the key drivers. Yet, prior research is non-experimental and focused on the so-called flat-rate bias. By contrast, we examine the effects of overconfidence on the choice between a pay-per-use and a flat-rate option using an experimental approach. We develop an incentive-compatible experiment to provide causal evidence for the effect of overconfidence on tariff-choice decisions. We find that overconfident (underconfident) consumers underestimate (overestimate) their actual usage, which leads them to choose a pay-per-use (flat-rate) option relatively more frequently. Based on the results, we discuss theoretical and managerial implications as well as avenues for future research.

Keywords: Overconfidence; Tariff choice; Pay-per-use; Flat-rate; Experiment (search for similar items in EconPapers)
JEL-codes: C90 D12 D84 D91 M31 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: An Experimental Analysis of Overconfidence in Tariff Choice (2019)
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DOI: 10.1007/s11846-020-00425-w

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