Catherine Tucker reviews research on the “flat-rate bias,” which describes the behavior of “consumers [who] will often choose a flat rate over a metered one, even when it’s not in their best interest”:
[In 2006, then-doctoral student Anja] Lambrecht found that the flat-rate bias could not be explained only by the fact that customers prefer the certainty or convenience of flat-rate pricing, or that they are overestimating their usage. Instead, it seemed that consumers actively avoid schemes where there is the possibility of feeling discomfort by mentally linking every extra unit of consumption to an increase in price. In other words, it’s not just a fear that you might underestimate your phone use or the congestion on your morning commute— it’s that consumers hate knowing that each extra minute or mile is costing them money. Lambrecht christened the discomfort that customers feel when the meter is running the “taxi-meter effect.” It appears that in general consumers want to enjoy a journey—or a phone call with a friend—without worrying about their wallets.
Surprisingly, however, the “taxi-meter effect” also seems to apply to experiences we don’t enjoy.
In a study of retail banking that came out earlier this year, Itai Ater and Vardit Landsman of Tel-Aviv University found that when an Israeli bank stopped charging per transaction and changed to a flat rate, their revenues went up by 15 percent. The previous pricing scheme had charged customers for most interactions with the bank, including check fees and fees per phone-banking transaction. Customers were happy to pay more per month to avoid having to pay per transaction. This work showed that the taxi-meter effect is not limited to a particular industry (previous experiments had focused on telecom), but is more deeply rooted in consumer psychology.
The Dish 