App Stats: Grubb on "Cellular Service Demand: Biased Beliefs, Learning, and Bill Shock" 

 We hope you can join us this Wednesday, September 5, 2012 for the first  Applied Statistics Workshop  of the Fall 2012 semester.  Michael Grubb , an Assistant Professor of Applied Economics from the  MIT Sloan School of Management , will give a presentation entitled "Cellular Service Demand: Biased Beliefs, Learning, and Bill Shock". A light lunch will be served at 12 pm and the talk will begin at 12.15. 

  "Cellular Service Demand: Biased Beliefs, Learning, and Bill Shock"  
Michael Grubb 
MIT Sloan School of Management 
CGIS K354 (1737 Cambridge St.)  
Wednesday, September 5th, 2012 12.00 pm 

 Abstract: 
 By April 2013, the FCC's recent bill-shock agreement with cellular carriers requires consumers be notified when exceeding usage allowances. Will the agreement help or hurt consumers? To answer this question, we estimate a model of consumer plan choice, usage, and learning using a panel of cellular bills. Our model predicts that the agreement will lower average consumer welfare by $2 per year because firms will respond by raising monthly fees. Our approach is based on novel evidence that consumers are inattentive to past usage (meaning that bill-shock alerts are informative) and advances structural modeling of demand in situations where multi-part tariffs induce marginal-price uncertainty. Additionally, our model estimates show that an average consumer underestimates both the mean and variance of future calling. These biases cost consumers $42 per year at existing prices. Moreover, absent bias, the bill-shock agreement would have little to no effect.