Consumer loss aversion and switching mobile tariffs

Consumer loss aversion and switching mobile tariffs 


Seminar by Nicolle Ambre (Lameta) 

On Friday, November 18, 2016 at 02:00 PM (Seminaire 6 - B31)

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This paper explores consumer’s learning in a situation of both uncertainty of consumption and sophisticated pricing. In particular, we explore the impact of ’overusages’ and ’underusages’ in the decision to switch tariff. We focus on the possible asymmetry of their impacts, what could be interpreted as a particular risk aversion behavior, namely loss aversion. We rely on a data set of 110,000 mobile consumers from a single European operator, observed between 2011 and 2014. As a first step, we compute ranks for all available tariffs to order them according to the computed bill based on usage. Then, we compare ranks before and after switching. This enables to provide the magnitude and time needed for consumers learning. As a second step, we use discrete choice models to assess the impact of ’overusages’ and ’underusages’ on the decision to switch tariff. Our preliminary results show significant consumer learning in a relatively short time interval and little evidence of overage aversion. Nevertheless its magnitude is smaller than which is computed in Genakos et al (2015). We expect to define more sophisticated econometric framework to provide robust results and in particular disentangle risk aversion from loss aversion.

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