In Pursuit of Sustainable Mobile Policy: A Study of Consumer Tariff Preferences under Uncertainty

Abstract

Literature suggests that consumers expect disutility not only from payment uncertainties but also from reference uncertainties embedded in mobile plans. This paper develops a model of mobile plan choice incorporating both reference and payment uncertainties and uses this model to derive testable implications. The paper argues that consumer choice reflects those uncertainties more than could be justified by rational choice theory. Such patterns, the paper hypothesizes, would be more salient in the choice of data plan than voice plan because consumers tend to perceive data usage to be less controllable than voice usage, thus preferring the plan that reduces uncertainty. The paper tests the predictions with data from a laboratory study analyzing a series of choices between plans with different tariff structures—flat-rate, two-part, and three-part tariffs. As predicted, the results suggest that payment and reference uncertainties create significant disutility for consumers, especially when they perceive high uncertainty about their usage. Such understanding of consumer preference and underlying psychological biases is important in the sense that it provides an essential basis for the development of sustainable mobile policy.