Not too much nor too little: Salience bias in mobile plan choices

Abstract

Understanding how consumers make tariff choices is a central issue in telecommunications. The object of the current paper is to investigate whether consumers use a particular heuristic thinking, i.e., salience-based decision making, in mobile plan choices. Using a unique panel data of mobile plan choices from a major telecommunication operator in China, we document evidence that consumer’s mobile plan choices are overly influenced by the salience of overusing or underusing the allowance. In particular, we show that given the ex post optimality of the current plan, a consumer tend to switch to plans with larger allowances when overuse the allowance, and switch to plans with smaller allowances when underuse the allowance. We also find that salience-based decision making is a consistent behavior pattern and heterogeneous among consumers. Finally, we show that more experienced consumers are more likely to avoid the upward bias but not the downward bias. Our findings have important managerial implications for managers and policy makers who intend to aid consumers’ mobile plan choices through information provision.