We all know that most extended warranties are wastes of money that generally go unused, so why do people buy them? According to a study in the Journal of Consumer Research, guilt-racked and nervous consumers are willing to shell out the extra cash to buy a little peace of mind…

Prof. Chen divides products into two categories: “hedonic” products that are associated with fun (flatscreen TVs, Wiis, stereos) and “utilitarian” products (computers, telephones). The iPhone is arguably both: functional as a communication device and as a mini light saber. Consumers are more likely to buy extended warranties for products that they value more. But more interestingly, consumers were more willing to buy warranties when they splurged on a product to alleviate their guilt about the purchase. “If you feel guilty,” Prof. Chen says, “you’re more likely to be risk averse.”

The terms of a warranty can also impact a consumer’s perception of a product’s quality. Just like an insurance policy, a consumer needs to gauge how likely the event of a breakdown is. (Which leads us to wonder why someone would buy something thought to be crummy in the first place.) Those who receive discounts on the initial price of a good are more likely to spend money for an extended-service contract.

Your credit cards may also offer some form of extended warranty protection, but you’ll have to call and ask your issuer for coverage details.

Why People Buy Extended Warranties [The Wallet]
Why Do Consumers Buy Extended Service Contracts? (pdf) [Journal of Consumer Research]
(Photo: andrew_cosand)

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