Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/288667 
Year of Publication: 
2020
Citation: 
[Journal:] Review of Managerial Science [ISSN:] 1863-6691 [Volume:] 15 [Issue:] 8 [Publisher:] Springer [Place:] Berlin, Heidelberg [Year:] 2020 [Pages:] 2275-2297
Publisher: 
Springer, Berlin, Heidelberg
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.
Subjects: 
Overconfidence
Tariff choice
Pay-per-use
Flat-rate
Experiment
JEL: 
M31
D91
D12
D84
C90
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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