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Loss aversion on the phone

Genakos, Christos, Roumanias, Costas and Valletti, Tommaso (2015) Loss aversion on the phone. CEP Discussion Paper (1373). Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Abstract

We analyze consumer switching between mobile tariff plans using consumer-level panel data. Consumers receive reminders from a specialist price-comparison website about the precise amount they could save by switching to alternative plans. We find that the effect on switching of being informed about potential savings is positive and significant. Controlling for savings, we also find that the effect of incurring overage payments is also significant and six times larger in magnitude. Paying an amount that exceeds the recurrent monthly fee weighs more on the switching decision than being informed that one can save that same amount by switching to a less inclusive plan, implying that avoidance of losses motivates switching more than the realization of equal-sized gains. We interpret this as evidence of loss aversion. We are also able to weigh how considerations of risk versus loss aversion affect mobile tariff plan choices: we find that a uniform attitude towards risk in both losses and gains has no significant influence on predicting consumers’ switching, whereas perceiving potential savings as avoidance of losses, rather than as gains, has a strong and positive effect.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/
Additional Information: © 2015 The Authors
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HB Economic Theory
JEL classification: D - Microeconomics > D1 - Household Behavior and Family Economics > D10 - General
D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty
L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L96 - Telecommunications
Sets: Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 14 Jan 2016 10:35
Last Modified: 07 Jun 2019 23:26
Funders: Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/64966

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