Responses to complex pricing signals: Theory, evidence and implications for road pricing
There is a potential tension between the theoretical desirability of highly differentiated tariff structures and the ability of consumers to respond effectively to them. Evidence from studies of road pricing schemes and tolls, from other transport modes, and from other industries (notably telecommunications), is reviewed and its transferability assessed. Relevant models of human decision making (notably Prospect Theory, Risk Aversion, Ambiguity Avoidance and Bounded Rationality) are explored, and the use and efficiency of heuristics to deal with complex situations is discussed. It is concluded that people have a strong preference for simple tariffs but that they are able to respond to quite complex tariffs provided that they have a clear and logical structure. However, people's difficulties in estimating distance will severely limit the accuracy of their estimates of distance-based charges and their response to complex pricing signals will be influenced by their attitude to the fairness of the charge. These conclusions are summarised in a general model of response to complex prices. The paper, which reports and extends a study conducted for the UK Department for Transport, concludes by considering the implications for the design and performance of road pricing schemes (an inherent problem being that the theoretically optimum, first-best, pricing structure might be so complicated and dynamically variable that it would be unreasonable to expect road users to predict, let alone respond to, the prices on any given road at any given time - a simpler pricing structure might therefore yield a better overall result).
Volume (Year): 41 (2007)
Issue (Month): 7 (August)
|Contact details of provider:|| Web page: http://www.elsevier.com/wps/find/journaldescription.cws_home/547/description#description|
|Order Information:|| Postal: http://www.elsevier.com/wps/find/supportfaq.cws_home/regional|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Devetag, M Giovanna, 1999.
"From Utilities to Mental Models: A Critical Survey on Decision Rules and Cognition in Consumer Choice,"
Industrial and Corporate Change,
Oxford University Press, vol. 8(2), pages 289-351, June.
- Maria Giovanna Devetag, 1999. "From utilities to mental models: A critical survey on decision rules and cognition in consumer choice," CEEL Working Papers 9902, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
- Maria Giovanna Devetag, 2001. "From utilities to mental models: A critical survey on decision rules and cognition in consumer choice," Experimental 0109001, EconWPA.
- Garbarino, Ellen C & Edell, Julie A, 1997. " Cognitive Effort, Affect, and Choice," Journal of Consumer Research, Oxford University Press, vol. 24(2), pages 147-158, September.
- Menon, Geeta & Raghubir, Priya, 2003. " Ease-of-Retrieval as an Automatic Input in Judgments: A Mere-Accessibility Framework?," Journal of Consumer Research, Oxford University Press, vol. 30(2), pages 230-243, September.
- Nahata, Babu & Ostaszewski, Krzysztof & Sahoo, Prasanna, 1999. "Buffet Pricing," The Journal of Business, University of Chicago Press, vol. 72(2), pages 215-228, April.
- Swait, Joffre & Adamowicz, Wiktor, 2001. " The Influence of Task Complexity on Consumer Choice: A Latent Class Model of Decision Strategy Switching," Journal of Consumer Research, Oxford University Press, vol. 28(1), pages 135-148, June.
- Bettman, James R & Luce, Mary Frances & Payne, John W, 1998. " Constructive Consumer Choice Processes," Journal of Consumer Research, Oxford University Press, vol. 25(3), pages 187-217, December.
- Ariely, Dan, 2000. " Controlling the Information Flow: Effects on Consumers' Decision Making and Preferences," Journal of Consumer Research, Oxford University Press, vol. 27(2), pages 233-248, September.
- Suri, Rajneesh & Monroe, Kent B, 2003. " The Effects of Time Constraints on Consumers' Judgments of Prices and Products," Journal of Consumer Research, Oxford University Press, vol. 30(1), pages 92-104, June.
- Diehl, Kristin & Kornish, Laura J & Lynch, John G, Jr, 2003. " Smart Agents: When Lower Search Costs for Quality Information Increase Price Sensitivity," Journal of Consumer Research, Oxford University Press, vol. 30(1), pages 56-71, June.
- Train, Kenneth E & Ben-Akiva, Moshe & Atherton, Terry, 1989. "Consumption Patterns and Self-selecting Tariffs," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 62-73, February.
- Todd, Peter M. & Gigerenzer, Gerd, 2003. "Bounding rationality to the world," Journal of Economic Psychology, Elsevier, vol. 24(2), pages 143-165, April.
- Lurie, Nicholas H, 2004. " Decision Making in Information-Rich Environments: The Role of Information Structure," Journal of Consumer Research, Oxford University Press, vol. 30(4), pages 473-486, March.
- Janiszewski, Chris & Lichtenstein, Donald R, 1999. " A Range Theory Account of Price Perception," Journal of Consumer Research, Oxford University Press, vol. 25(4), pages 353-368, March. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:eee:transa:v:41:y:2007:i:7:p:672-683. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.