The Incidence of Tariff Schedules and Price Information on Inattentive Consumers: a Lab Experiment

We design an induced value laboratory consumption choice experiment where complex tariff schemes trigger nonlinear simplification heuristics that lead individuals to over- or underconsume public goods such as electricity, gas, or drinking water. By studying this “schmeduling” bias, we investigate how an informational nudge could reduce it. Participants choose consumption levels repeatedly under different tariff schemes, where the marginal price per unit either remains constant (constant block rate, i.e., CBR) or increases above a certain threshold (increasing block rate, or IBR). We observe that the vast majority of choices are optimal, but a significant number of them reveal overconsumption. To investigate the impact of the informational nudge on these errors, some of our participants received a marginal price reminder. In that case, the learning effect helps to achieve convergence towards the optimal consumption value. To explain these effects, we use econometric models relying on microeconomic behavioral inattention to price to capture the magnitude of consumers’ inattention, observing, in particular, how the informational nudge is decreasing it.