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My hunch: part of the problem here is that people got fleeced by retailers, who sold hugely overpriced extended warranties, banking on loss aversion and risk av
by gmac 9y ago
My hunch: part of the problem here is that people got fleeced by retailers, who sold hugely overpriced extended warranties, banking on loss aversion and risk aversion and general lack of technological understanding. When people realised how much they had been fleeced (assisted by consumer programmes like Watchdog in the UK), many of them went off extended warranties as a mug's game — and never came back. (I once had a Xmas temp job at UK electronics retailer Dixons, commission was on profit, and one extended warranty was worth dozens of devices sold — beaten only by mobile phone contracts).
So anyway, that's a reason why people's revealed preference for extended warranties might not correspond with their true preference for longevity in consumer products.
It's also the case that if you can afford to insure yourself against something (like a consumer good breaking down), and average the costs across all such things, then generally you'll save money by doing so — especially if you reckon, as I do in this case, that you take better-than-average care of your consumer goods. In that case, the price of the extended warranty is a signal of expected longevity, and features in your purchase decision (lower = better), even if you don't buy it. So again, revealed preference for warranties may not equal true preference for longevity.
Finally, we're collectively using and disposing of too much stuff, and one of the reasons for this is that externalities such as waste and resource depletion are not fully internalised. So even if people are not buying extended warranties, and that truly reflects an indifference to product lifespan, there may well be an argument that by "forcing them to buy an extended warranty" — which also forces the manufacturer to take responsibility for the product over a longer period, and thus pay more attention to how long it generally lasts — you get higher social welfare, despite some constraint on individual consumer freedom.
Finally, people are hyperbolic discounters, they are myopic in a way that hurts their happiness, so a regulation that encourages longer-term thinking may help them in the long run.
TL;DR: I think this measure has potential to be a really good thing all round.
- andrewla 9y agoYes, you can argue that warranties are overpriced, but if everyone factored the price of the extended warranty into every purchase they made, then manufacturers would naturally be forced to reduce the cost of the warranty, by making their product either more reparable or increasing initial quality. > Finally, people are hyperbolic discounters, they are myopic in a way that hurts their happiness, so a regulation that encourages longer-term thinking may help them in the long run. Here it may just be my Yankee self-reliance talking, but this smacks of the worst sort of paternalism. Arguing slippery slope arguments is in itself a slippery slope, but why stop here? If buying a bigger TV is not going to make me happy (or make me unhappier) then surely a regulation should exist to prevent me from buying it. When there are significant externalities (like leaded gasoline) then government regulation is easy to justify. When the externalities are second-hand (the reduction in demand for product longevity causes reparability to become a secondary concern for manufacturers) then I'm more inclined to err on the side of "let the customer set the price of their own risk", rather than "let's just increase costs for everyone because it may or may not have a net societal benefit". I don't trust that regulatory authorities are above the myopia and are truly able to see long-term more than anyone else.
- gmac 9y agoOn the last point, yes this is paternalism, but I'm not convinced it's the worst sort. On your big TV example, you probably shouldn't be prevented from buying it, but other measures to discourage you from buying it could in theory be welfare-improving on a societal level, and if they were then that would constitute part of a case for imposing them.