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Unwarranted
"I usually don't buy" extended warranties, he said. "But the [television] cost so much. It's impossible to buy a decent flat screen for less than a grand. I wanted to protect my investment."
Weiner's desire to safeguard his new television speaks volumes about how extended warranties play upon a basic human trait to avoid loss, even if it means sacrificing a possible future gain. In this case, the gain is all the other things of value that a consumer could buy with the money that was spent on a warranty.
 (By Steve McCracken for The Washington Post) |
The instinct to protect what we have and forgo the obvious benefits of another course is one long studied by behavioral economists. Kevin McCabe, an economist and director of the Center for the Study of Neuroeconomics at George Mason University, said that even without knowing from experience that a product will break, many people insure it anyway.
"I suspect that this behavior is in part due to our sensitivity to uncertainty in general," he said.
That reliance on gut instinct points to an inherent disadvantage for consumers in the purchase process, economists and consumer advocates say. Buying an extended warranty is vastly different from selecting most other insurance products. When buying car insurance, for instance, it's relatively easy to make an informed decision by comparing terms and prices among different carriers. The power struggle between buyer and seller is relatively balanced.
But when deciding whether to buy an extended warranty, it is nearly impossible to comparison shop from the checkout counter. And, because the insurance and service companies are invisible at the time of sale, consumers can't verify their financial health or reliability.
Then, there's the obvious question that may not occur to many buyers.
"Why do I need an extended warranty on a phone I'm going to replace in two years anyway? Or one year?," said Greg Brue, a quality consultant and expert on product life cycles who runs Six Sigma Consultants Inc. in Albuquerque.
Making a Claim
To find out more about how extended warranties are sold, a Washington Post reporter recently visited several big-box retailers and asked sales personnel about plans offered at those stores. None of the salespeople would speak on the record, and each referred the reporter to a spokesman for the store's parent company.
Bill Cimino, a spokesman for Circuit City Stores Inc., said that extended warranties may not be right for every customer.
"It's an individual customer decision," he said. "It's something we offer customers in the same way we offer any other product."
Three years ago, Circuit City eliminated commissions for salespeople to sell extended warranties, though they are trained to make sure customers know about the warranties and their benefits, he said. "You can take the literature home," he said. "You don't have to buy it at the time of sale."
