A05
Transparency and Product Choice
Discussion Papers

Discussion Paper No. 276
November 10, 2021

Do Robo-Advisors Make Us Better Investors?

Author:

Camila Back (LMU Munich)
Stefan Morana (Saarland University)
Martin Spann (LMU Munich)

Abstract:

Investors increasingly can obtain assistance from “robo-advisors,” artificial intelligence–enabled digitalized service agents imbued with anthropomorphic design elements that can communicate using natural language. The present article considers the impact of anthropomorphized robo-advisors on investment decisions, with a focus on their ability to mitigate investors’ behavioral biases. We study the well-documented disposition effect, which reflects investors’ greater propensity to realize past gains than past losses. In two induced-value laboratory experiments, the availability of a robo-advisor reduces (i.e., mitigates) investors’ disposition effect. This relationship is mediated by two simultaneous (indirect) effects: the extent of requests for the robo-advisor’s investment advice and perceptions of its socialness. These findings resonate with cognitive dissonance theory, which predicts that assigning responsibility to the advisor helps investors resolve a sense of discomfort that may arise after a financial loss. Anthropomorphic design elements alone are not sufficient to reduce the disposition effect, but they decrease investors’ propensity to seek advice, which offsets the positive (indirect) effect of perceived socialness. These results have implications for the ongoing automation of advisory services, as well as for improving decision making, and suggest some further research directions.

Keywords:

robo-advisors; artificial intelligence; advice; anthropomorphism; disposition effect;

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Discussion Paper No. 271

Paying for Open Access

Author:

Lucas Stich (LMU Munich)
Martin Spann (LMU Munich)
Klaus M. Schmidt (LMU Munich)

Abstract:

Open access (OA) publishing upends the traditional business model in scientific publishing by requiring authors instead of readers to pay for the publishing-related costs. In this paper, we aim to elicit the willingness to pay (WTP) of authors for open access publishing. We conduct two separate field studies with different methodological approaches in different scientific disciplines (economics and medicine). First, a choice-based conjoint (CBC) analysis measures stated preferences of 243 economists in Germany, Austria, and Switzerland regarding their valuations of open access publishing in the “Top 5” economics journals. Second, a field experiment at four different open access medical journals elicits authors’ self-determined (“Pay-What-You-Want”) payments for open access publications. The results provide a plausible range of authors’ valuations, given that the first study rather provides an upper bound and the second study a lower bound of authors’ willingness to pay for open access publishing.

Keywords:

open access; willingness to pay; choice-based conjoint analysis; pay-what-you-want; field experiment;

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Discussion Paper No. 248
November 9, 2021

Dynamic Pricing in a Digitized World

Author:

Martin Spann (LMU Munich)
Bernd Skiera (Goethe University Frankfurt)

Abstract:

Digital technologies favor the use of dynamic pricing, i.e., prices that vary unannounced for a product that basically remains unchanged. However, different forms of dynamic pricing are often mixed in the public discussion, which makes a meaningful analysis of the advantages and disadvantages of dynamic pricing difficult. The aim of this paper is to present the economic foundations of dynamic pricing as well as to discuss and to classify its design options. In addition, the paper assesses dynamic pricing from a buyer and seller perspective. Finally, the paper discusses implications for business research.

Keywords:

dynamic pricing; price differentiation; price discrimination; digitization;

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Discussion Paper No. 216

Intertemporal Preferences and the Adoption Decision for Bluetooth Speakers

Author:

Daniel Guhl (HU Berlin)
Daniel Klapper (HU Berlin)

Abstract:

The adoption decision for durable goods is intertemporal by definition. However, estimating utility and discount functions from revealed preference data using dynamic discrete choice models is difficult because of an inherent identification problem. To overcome this issue, we use stated preference data. Specifically, we employ the experimental design of Dubé, Hitsch, and Jindal (2014), where future prices are known and that elicits intertemporal adoption decisions for Bluetooth speakers in a discrete choice framework. We estimate several models of discounting (e.g., static, myopic, geometric, and quasi-hyperbolic) and find considerably lower discount factors than typical market interest rates would suggest. The values are also smaller compared to respondents’ matching-based discount factors, even though the correlation is positive and significant. Furthermore, there are substantial differences in discounting across respondents (i.e., heterogeneity in time-preferences) and lastly, there is no strong empirical evidence for quasi-hyperbolic discounting. Thus, the standard economic model seems to be appropriate for the data at hand.

Keywords:

intertemporal preferences; dynamic discrete choice models; durable goods adoption;

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Discussion Paper No. 193

The Existence and Persistence of the Pay-Per-Use Bias in Car Sharing Services

Author:

Katharina Dowling (LMU Munich)
Puneet Manchanda (University of Michigan)
Martin Spann (LMU Munich)

Abstract:

A key benefit of using car sharing services (relative to car ownership) is that they are more cost effective. Car sharing firms offer a menu of pricing plans to make this happen. The two most common plans are flat-rate and pay-per-use pricing. However, little is known about how consumers choose among these pricing plans. In this study, we analyze consumers’ choices between pay-per-use and flat-rate pricing using data from a car sharing provider in a large European city. We show that over 40% of customers make nonoptimal pricing plan choices (i.e., they do not choose the cost minimizing plan). In contrast to previous research, we find a prevalent and time-persistent pay-per-use bias; i.e., we find little evidence that consumers “learn”. We propose three potential explanations for the existence and persistence of this bias. First, we suggest that customers underestimate their usage. Second, we propose that customers have a preference for flexibility, leading them to pay more. Finally, we show that the physical context, such as weather, increases the likelihood of a pay-per-use bias. We suggest that the pay-per-use bias may be the prevalent tariff choice bias in the Sharing Economy.

Keywords:

sharing economy; car sharing; pricing; pay-per-use bias; flat-rate bias;

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Discussion Paper No. 154
November 8, 2021

An Experimental Analysis of Overconfidence in Tariff Choice

Author:

Katharina Dowling (LMU Munich)
Martin Spann (LMU Munich)
Lucas Stich (LMU Munich)

Abstract:

Digitalization has changed existing business models and enabled new ones. This development has been accompanied by the emergence of new pricing options and the possibility of applying established pricing models in new domains. Today, consumers can, for example, pay for accessing a product instead of buying it. Within such sharing services, consumers can usually choose between a flat-rate and a pay-per-use option. Prior work demonstrated that consumers' tariff choices are often systematically biased. Overconfidence was identified 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 tariff choice experimentally. We show that overconfident consumers overestimate their ability to predict their future usage, which leads them to underestimate their actual usage, and eventually leads them to choose a pay-per-use (vs. a flat-rate) option more frequently. We discuss theoretical and managerial implications.

Keywords:

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Discussion Paper No. 147

Metric and Scale Effects in Consumer Preferences for Environmental Benefits

Author:

Vlada Pleshcheva (HU Berlin)

Abstract:

The present study investigates how the framing of information on the environmental impact of vehicles affects consumers’ preferences for identical improvements in carquality. In online choice experiments, the effects of two metrics (fuel consumption vs. CO2 emissions) and three scales of one metric (CO2 in kg/km vs. g/km vs. g/100km) are examined. First, from a technical perspective, fuel consumption (FC) and CO2 emissions are linearly connected by a constant factor and are thus isomorphic indescribing the environmental friendliness of a car. Second, rescaling identical informa-tion should not change consumer decisions. However, as this study demonstrates, the type of information presented to consumers significantly affects consumers’ valuation of environmental benefits from a reduction in FC or CO2. The study’s contribution lies in quantifying the differences in consumers’ preferences for two measures of the same information that have not been previously directly compared. Additionally, the differences in the framing effects are explored for diesel and gasoline vehicles. The estimation accounts for heterogeneity in the tastes, environmental attitudes and knowledge of the respondents. The insights of this study serve to guide policy makers and carmanufacturers on how to present information on car offers.

Keywords:

choice architecture; environmental impact; framing effects; vehicle choice;

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Discussion Paper No. 141

The Moderating Effect of Fuel Prices on the Market Value of Fuel Efficiency, Driving Intensity, and CO2 Emissions

Author:

Vlada Pleshcheva (Institute for Marketing HU Berlin)
Daniel Klapper (Institute for Marketing HU Berlin)

Abstract:

In the current paper, we quantify the effect that fuel prices have on vehicle prices' responsiveness to fuel economy. We apply a hedonic price model to the German automobile market by using data on detailed technical specifications of high-sales vehicles of three sequential model years. In the contribution to previous research, our specification enables us to distinguish between consumers' valuation of fuel economy versus their reaction to changes in fuel prices. Two sources of changes in consumers' willingness-to-pay for better fuel economy are discussed - changes in the budget for driving a car and changes in capital investments in better car quality. We also discuss the subsequent changes in the optimal driving intensity and the resulting carbon dioxide emissions. Differences in the effects are studied for various car makes of both diesel and gasoline engines.

Keywords:

co2 emissions; fuel economy; fuel prices; hedonic regression;

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Discussion Paper No. 140

On Factors of Consumer Heterogeneity in (Mis)Valuation of Future Energy Costs: Evidence for the German Automobile Market

Author:

Vlada Pleshcheva (HU Berlin)
Daniel Klapper (HU Berlin)
Till Dannewald (Wiesbaden Business School)

Abstract:

In this paper, we first recover the individual valuation of expected future fuel costs at the time of a car purchase and then explore how various factors relate to the recovered consumer undervaluation of fuel savings (on average, consumers' willingness-to-pay for a €1 reduction in fuel costs is below €0.20).

Keywords:

energy-efficient paradox; hedonic discrete choice model; vehicle purchase; willingness-to-pay;

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Discussion Paper No. 111
November 5, 2021

Inferring Attribute Non-Attendance Using Eye-Tracking in Choice-Based Conjoint Analysis

Author:

Narine Yegoryan (HU Berlin)
Daniel Guhl (HU Berlin)
Daniel Klapper (HU Berlin)

Abstract:

Traditionally, the choice-based conjoint analysis relies on the assumption of rational decision makers that use all available information. However, several studies suggest that people ignore some information when making choices. In this paper, we build upon recent developments in the choice literature and employ a latent class model that simultaneously allows for attribute non-attendance (ANA) and preference heterogeneity. In addition, we relate visual attention derived from eye tracking to the probability of ANA to test, understand, and validate ANA in a marketing context. In two empirical applications, we find that a) our proposed model fits the data best, b) the majority of respondents indeed ignores some attributes, which has implications for willingness-to-pay estimates, segmentation, and targeting, and c) even though the latent class model identifies ANA well without eye tracking information, our model with visual attention helps to better understand ANA by also accounting for differences in attribute processing patterns.

Keywords:

attribute non-attendance; eye tracking; discrete choice modeling; choice-based conjoint analysis;

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