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Do Customers Learn from Experience? Evidence from Retail Banking

Author

Listed:
  • Itai Ater

    (Recanati Business School, Tel Aviv University, Tel Aviv 69978, Israel)

  • Vardit Landsman

    (Recanati Business School, Tel Aviv University, Tel Aviv 69978, Israel; and Erasmus School of Economics, Erasmus University Rotterdam, 3000 DR Rotterdam, The Netherlands)

Abstract

We study customers' adoption and subsequent switching decisions with regard to a menu of three-part tariff plans offered by a commercial bank. Using a rich panel data set covering 70,510 fee-based checking accounts over 30 months, before and after the introduction of the plans, we find that most customers adopt non-cost-minimizing plans, preferring plans with large monthly allowances and high fixed payments. Furthermore, after adoption, customers who exceed their allowances and consequently pay overage fees are more likely to switch to plans with larger allowances than customers who do not experience such fees. Notably, after switching, these overage-paying customers pay higher monthly payments than before. In contrast, switching customers who did not pay overage payments before switching pay less after switching. Our findings, unlike those of previous research on experience-based learning, suggest that the behavior of experienced customers does not converge to the predictions of neoclassical models. We propose that “overage aversion,” which is closely related to loss aversion and mental accounting, is the most plausible explanation for our findings. This paper was accepted by John List, behavioral economics.

Suggested Citation

  • Itai Ater & Vardit Landsman, 2013. "Do Customers Learn from Experience? Evidence from Retail Banking," Management Science, INFORMS, vol. 59(9), pages 2019-2035, September.
  • Handle: RePEc:inm:ormnsc:v:59:y:2013:i:9:p:2019-2035
    DOI: 10.1287/mnsc.1120.1694
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    4. Jin, Haofeng, 2022. "The effect of overspending on tariff choices and customer churn: Evidence from mobile plan choices," Journal of Retailing and Consumer Services, Elsevier, vol. 66(C).
    5. Landsman, Vardit & Nitzan, Irit, 2020. "Cross-decision social effects in product adoption and defection decisions," International Journal of Research in Marketing, Elsevier, vol. 37(2), pages 213-235.
    6. John Gathergood & David Hirshleifer & David Leake & Hiroaki Sakaguchi & Neil Stewart, 2023. "Naïve Buying Diversification and Narrow Framing by Individual Investors," Journal of Finance, American Finance Association, vol. 78(3), pages 1705-1741, June.
    7. Genakos, Christos & Roumanias, Costas & Valletti, Tommaso, 2023. "Is having an expert “friend” enough? An analysis of consumer switching behavior in mobile telephony," Journal of Economic Behavior & Organization, Elsevier, vol. 213(C), pages 359-372.
    8. Shirley Pon, 2017. "The Effect of Information on TOU Electricity Use: an Irish residential study," The Energy Journal, International Association for Energy Economics, vol. 0(Number 6).
    9. Schwartz-Landsman, V., 2020. "A Chasm to Cross: From Research to Practice and Back," ERIM Inaugural Address Series Research in Management EIA 2020-081-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam..
    10. Sule, Alan & Cemalcilar, Mehmet & Karlan, Dean S. & Zinman, Jonathan, 2015. "Unshrouding Effects on Demand for a Costly Add-on: Evidence from Bank Overdrafts in Turkey," Center Discussion Papers 198558, Yale University, Economic Growth Center.
    11. Paul D. Adams & Stefan Hunt & Christopher Palmer & Redis Zaliauskas, 2019. "Testing the Effectiveness of Consumer Financial Disclosure: Experimental Evidence from Savings Accounts," NBER Working Papers 25718, National Bureau of Economic Research, Inc.
    12. Carmine Ornaghi & Mirco Tonin, 2018. "Water Tariffs and Consumers' Inaction," BEMPS - Bozen Economics & Management Paper Series BEMPS50, Faculty of Economics and Management at the Free University of Bozen.
    13. Guiso, Luigi & Pistaferri, Luigi & Fagereng, Andreas, 2022. "Assortative Mating and Wealth Inequality," CEPR Discussion Papers 17148, C.E.P.R. Discussion Papers.
    14. Adams, Paul & Hunt, Stefan & Palmer, Christopher & Zaliauskas, Redis, 2021. "Testing the effectiveness of consumer financial disclosure: Experimental evidence from savings accounts," Journal of Financial Economics, Elsevier, vol. 141(1), pages 122-147.
    15. Heiss, Florian & Ornaghi, Carmine & Tonin, Mirco, 2021. "Inattention vs switching costs: An analysis of consumers' inaction in choosing a water tariff," DICE Discussion Papers 366, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    16. Chen, Claire Y.T. & Sun, Edward W. & Miao, Wanyu & Lin, Yi-Bing, 2024. "Reconciling business analytics with graphically initialized subspace clustering for optimal nonlinear pricing," European Journal of Operational Research, Elsevier, vol. 312(3), pages 1086-1107.
    17. Nicola Branzoli, 2016. "Price dispersion and consumer inattention: evidence from the market of bank accounts," Temi di discussione (Economic working papers) 1082, Bank of Italy, Economic Research and International Relations Area.

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