An experimental analysis of overconfidence in tariff choice

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

Pay What You Want as a Pricing Model for Open Access Publishing?

We analyze 'Pay What You Want' as a business model for Open Access publishing by discussing motives leading authors to make voluntary contributions, potential benefits for publishers and present results from a field experiment at one publisher. Data from the field experiment indicate authors' willingness to voluntarily contribute

When Transaction-Level Wage Transparency Can Increase Consumer Preference

Firms are usually reluctant to disclose information about the production costs of their goods and services; however, some firms have recently started to disclose cost information to consumers. This research examines the consequences of disclosing transaction-level wage information on consumer preferences. Six experiments, both in field and lab settings across multiple service domains, document that disclosing a service worker’s compensation can increase consumer preference for that firm’s service if the compensation is sufficiently high (i.e., perceived as fair by consumers). This greater preference for services provided in a fair-wage setting is driven by consumers’ feelings of anticipated guilt and higher expectations concerning quality. Available social norms regarding fair compensation and the nature of the service worker (human vs. non- human) are both identified as important boundary conditions of the proposed process. This research offers a first step toward understanding the psychological and behavioral consequences of disclosing transaction-level wage information to consumers, thereby enabling managers to better identify when they should disclose wage information as part of their marketing strategy. This research also informs policy makers on how to encourage social preferences and consumer choices in order to promote fair outcomes for consumers, firms, and workers

Delegating Pricing Power to Customers: Pay What You Want or Name Your Own Price?

Pay What You Want (PWYW) and Name Your Own Price (NYOP) are customer driven pricing mechanisms that give customers (some) pricing power. Both have been used in service industries with high fixed costs to price discriminate without setting a reference price. Their participatory and innovative nature gives rise to promotional benefits that do not accrue to posted-price sellers. We explore the nature and effects of these benefits and compare PWYW and NYOP using controlled lab experiments. We show that PWYW is a very aggressive strategy that achieves almost full market penetration. It can be profitable if there are promotional benefits and if marginal costs are low. In contrast, NYOP can be used profitably also if marginal costs are high and if there are no such benefits. It reduces price competition and segments the market. In a second experiment, we generate promotional benefits endogenously. We show that PWYW monopolizes the follow-up market but fails to be profitable. NYOP is less successful in penetrating the market but yields much higher profits

Delegating Pricing Power to Customers: Pay What You Want or Name Your Own Price?

Pay What You Want (PWYW) and Name Your Own Price (NYOP) are customer-driven pricing mechanisms that give customers (some) pricing power. Both have been used in service industries with high fixed capacity costs in order to appeal to additional customers by reducing prices without setting a reference price. In this experimental study we compare the functioning and the performance of these two pricing mechanisms. We show that both mechanisms can be successfully used to endogenously price discriminate. PWYW can be very successful if there is an additional promotional benefit to using PWYW and if marginal costs are not too high. PWYW is a very aggressive competitive strategy that achieves almost full market penetration. NYOP is a less aggressive strategy that can also be used if marginal costs are high. It reduces price competition and segments the market. Low valuation customers are more likely to use NYOP while high valuation customers prefer a posted price seller

Behavioral Biases in Marketing

Psychology and economics (the mixture of which is known as behavioral economics) are two fundamental disciplines underlying marketing. Various marketing studies document the non-rational behavior of consumers, even though behavioral biases might not always be consistently termed or formally described. In this review, we identify empirical research that studies behavioral biases in marketing. We summarize the key findings according to three classes of deviations (i.e., non-standard preferences, non-standard beliefs, and non-standard decision-making) and the marketing mix instruments (i.e., product, price, place, and promotion). We thereby introduce marketing researchers to the theoretical foundation of and terminology used in behavioral economics. For scholars from behavioral economics, we provide ready access to the rich empirical, applied marketing literature. We conclude with important managerial implications resulting from the behavioral biases of consumers, and we present avenues for future research

The intersection between Descriptivism and Meliorism in reasoning research: further proposals in support of 'soft normativism'

The rationality paradox centres on the observation that people are highly intelligent, yet show evidence of errors and biases in their thinking when measured against normative standards. Elqayam and Evans (e.g., 2011) reject normative standards in the psychological study of thinking, reasoning and deciding in favour of a ‘value-free’ descriptive approach to studying high-level cognition. In reviewing Elqayam and Evans’ position, we defend an alternative to descriptivism in the form of ‘soft normativism’, which allows for normative evaluations alongside the pursuit of descriptive research goals. We propose that normative theories have considerable value provided that researchers: (1) are alert to the philosophical quagmire of strong relativism; (2) are mindful of the biases that can arise from utilising normative benchmarks; and (3) engage in a focused analysis of the processing approach adopted by individual reasoners. We address the controversial ‘is–ought’ inference in this context and appeal to a ‘bridging solution’ to this contested inference that is based on the concept of ‘informal reflective equilibrium’. Furthermore, we draw on Elqayam and Evans’ recognition of a role for normative benchmarks in research programmes that are devised to enhance reasoning performance and we argue that such Meliorist research programmes have a valuable reciprocal relationship with descriptivist accounts of reasoning. In sum, we believe that descriptions of reasoning processes are fundamentally enriched by evaluations of reasoning quality, and argue that if such standards are discarded altogether then our explanations and descriptions of reasoning processes are severely undermined

Recurrent Partial Words

Partial words are sequences over a finite alphabet that may contain wildcard symbols, called holes, which match or are compatible with all letters; partial words without holes are said to be full words (or simply words). Given an infinite partial word w, the number of distinct full words over the alphabet that are compatible with factors of w of length n, called subwords of w, refers to a measure of complexity of infinite partial words so-called subword complexity. This measure is of particular interest because we can construct partial words with subword complexities not achievable by full words. In this paper, we consider the notion of recurrence over infinite partial words, that is, we study whether all of the finite subwords of a given infinite partial word appear infinitely often, and we establish connections between subword complexity and recurrence in this more general framework.Comment: In Proceedings WORDS 2011, arXiv:1108.341