Extended Warranties

Bradley M. Kuhn at 2017-11-30T21:13:27Z

I wonder if I'm the only person in the world who analyzes extended warranties on electronics like prop bets.

I'm buying a laptop for my wife. The extended warranty cost is a 1-to-16 bet against the price today of the laptop.

So, i sit and think: "If I were to buy this laptop 16 times would at least one of them fail in the second year? Third year?"

I have concluded that it's a bad bet, for two reasons: (0) Companies employ acctuaries to analyze these situations with tons of data to ensure it's a bad bet, and (1) when I factor in the odds that I can repurpose a partly broken laptop (e.g., if only the wifi subsystem fails) into a useful task anyway, there is added value that isn't inherent when I consider "broken to point of unusable". I'm not sure how to quantify its numeric effect on the odds, but I suspect it puts well out of the 1-to-16 per-year area that the company is offering for warranty pricing.

McClane, Stephen Michael Kellat, Claes Wallin (韋嘉誠), AJ Jordan likes this.

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Re: (0) it can be a good bet for the company and for you, for rational loss-aversion reasons. Fixing the laptop may be more value to you than the cost for the company, and having a warranty and a place to call that will fix it may lower transaction costs for you compared to trying to fix it with a third party.

But yeah, I don't buy extended warranties. I try to make sure there's no invaluable data on the machine, so that it is trivial to chuck out and replace if need be.

Claes Wallin (韋嘉誠) at 2017-12-01T00:28:50Z

1999-2004 was a period when I just kept killing hardware.  That corresponds to undergrad and grad work. 

Stephen Michael Kellat at 2017-12-02T17:55:49Z

Generally I avoid warranties like the plague. I did buy an extended warranty on a phone I bought a few years ago. Worked out well when the non-replaceable battery started dying in the second year--even though it should have been considered a manufacturer defect.

For laptops that we loan out to students at our library, however, we buy extended warranties that cover damage due to drops, etc. This protects the students from heinous charges when the inevitable accidents happen.

Dan Scott at 2017-12-04T12:51:27Z