Undercover Economist

Wrong numbers

The Undercover Economist – FT Magazine, 15 April

For nearly two months, a glossy magazine from my mobile phone company has been lying around the place. I took it with the intention of choosing a decent calling plan, but so far I’ve made little progress. Occasionally, I pick it up and thumb it listlessly but cannot get my mind around the different pricing options.

The permutations include on-peak, off-peak, in-network, out-of- network, joint accounts, “bundles” of this and that, and a variety of additional offers conditional on my signing some form of longer term contract. The choice is bewildering.

Usually, I have little sympathy with those who complain about the agony of choice. If the choice is important, such as when you buy a house, then it’s good to have the choice even between fine details. If the choice is not important, such as that between the 55,000 drinks alleged to be available at Starbucks, then few of us acquire grey hairs making it.

But the range of phone tariffs isn’t that kind of choice. All we’re being offered is a number of different prices. Unlike the choice between the Venti caramel latte and the small black coffee, the choice between “Any network anytime 200″ and “Any network off-peak 1000″ is not a matter of taste. There’s a correct answer and dozens of incorrect ones, and a computer armed with your bill and your company’s tariffs could work out, with hindsight, what you should have done.

With neither the computer nor the hindsight you can end up paying far more than you should. You will also struggle to discern who offers the best deals. So it’s tempting to conclude that the confusion is deliberate.

Economists had little to say about confusion pricing until recently. We find it hard to talk about the subject because the Vulcans who live in our economic models don’t get confused. However, Eugenio Miravete, an economist at the University of Pennsylvania, has been studying how humans, not Vulcans, choose between confusing calling plans. His conclusion is that customers leave little on the table. They are good at judging which calling plan will cost least, and good at switching if they guess wrong.

I wasn’t sure what to make of Miravete’s research. It is limited by the availability of detailed data, so Miravete only studied the early days of confusion pricing, when the choice was between just two calling plans. My company offers 10, plus innumerable combinations of frills and top-ups. I face much more demanding calculations than the ones Miravete studied – hence my well-thumbed magazine and no decision.

But something strange happened after I read about Professor Miravete’s intelligent, motivated subjects. I felt ashamed and was galvanised into calling my phone company. I spoke to a nice Scottish lady called Katie, who was very quickly able to tell me how much I was paying, and for what, before suggesting a couple of different tariffs that look likely to save me £10 or £15 a month. Not bad for a five-minute phone call.

The experience suggests that confusion pricing is not really about trying to entangle every customer in an impenetrable web of complex offers. Instead, it’s a very simple screening device to spot customers with money to burn. If you don’t care enough about your phone bill to ask for advice, then you can obviously afford to pay a little more.

I wondered whether my life might be made even easier, though. Couldn’t the phone company just use its computer to offer me the best deal, with hindsight, each month? “I’m afraid we can’t do that,” said Katie, rather sweetly. “I don’t know why. That is the way things have been organised for some time.”

First published at ft.com and at Slate.com