Choosing the Wrong Calling Plan? Ignorance, Learning, and Risk Aversion
It is commonly believed that consumers behave irrationally when subscribing optional telephone tariffs. The fact that they show a strong preference for flat rate options has commonly been interpreted as evidence of irrational behavior since such a choice is believed not to be cost-minimizing ex post in most cases. My results, obtained using the data from the 1986 Kentucky tariff experiment, contradict these views and provide strong evidence in favour of the rationality of consumers' choices. I found that expectations on future consumption play a major role in the choice of tariffs but also that consumption forecast errors are more related to the volume of local telephone usage than to any particular demographic profile. More importantly, the evidence shows that there exist important learning effects that induce tariff switching in order to minimize the magnitude of monthly bills even in the short term and responding to very small cost differences. Finally, risk aversion is ruled out as a possible source of consumers' biased taste for flat tariffs.
|Date of creation:||Sep 2000|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
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.:
- Eugenio J. Miravete, 2002.
"Estimating Demand for Local Telephone Service with Asymmetric Information and Optional Calling Plans,"
Review of Economic Studies,
Oxford University Press, vol. 69(4), pages 943-971.
- Miravete, Eugenio J, 2000. "Estimating Demand for Local Telephone Service with Asymmetric Information and Optional Calling Plans," CEPR Discussion Papers 2635, C.E.P.R. Discussion Papers.
- Eugenio J. Miravete, "undated".
"Quantity Discounts for Taste-Varying Consumers,"
CARESS Working Papres
99-11, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
- Eugenio J. Miravete, "undated". "Quantity Discounts for Taste-Varying Consumers," Penn CARESS Working Papers e8c875d525675df452b9522a2, Penn Economics Department.
- Kridel, Donald J. & Lehman, Dale E. & Weisman, Dennis L., 1993. "Option value, telecommunications demand, and policy," Information Economics and Policy, Elsevier, vol. 5(2), pages 125-144, July.
- Butler, J S & Moffitt, Robert, 1982. "A Computationally Efficient Quadrature Procedure for the One-Factor Multinomial Probit Model," Econometrica, Econometric Society, vol. 50(3), pages 761-764, May.
- Clay, Karen B & Sibley, David S & Srinagesh, Padmanabhan, 1992. "Ex Post vs. Ex Ante Pricing: Optional Calling Plans and Tapered Tariffs," Journal of Regulatory Economics, Springer, vol. 4(2), pages 115-138, June.
- Srinagesh, P., 1992. "A Dynamic Stochastic Model of choice," Papers 78, Bell Communications - Economic Research Group. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:2562. 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: ()
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.