An Experimental Analysis of Regulatory Interventions for Complex Pricing

Abstract

Considerable evidence demonstrates that consumers make poor choices in complex decision environments. One such environment is the choice of a mobile (cell) phone plan, where consumers frequently encounter complicated nonlinear tariffs. We study the efficacy of five policy interventions to improve consumer decision making in an experimental context where subjects choose among a set of predefined phone plans involving nonlinear tariffs. The policies involve training subjects to compute call costs or the cost of a plan, two additional information treatments, and extra feedback. We find that both training about plan costs and providing information about plan value significantly improve decision-making. However, these benefits attenuate as subjects gain greater experience. Feedback is effective for experienced decision makers. Implications for policy are discussed, mindful of the infrequency with which consumers are actually ‘in the market’ for a better phone service plan.