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When Should You Go For the Extended Warranty?

DESCRIPTIONDaniel Hamermesh

You shouldn’t buy the extended warranties on electronics and other goods that places like Best Buy are pushing when you purchase their products (unless you think you have an unusual tendency to buy lemons, are remarkably hard on products you purchase or are extremely risk-averse). But what about deals offered by your plumber or your HVAC firm, which for a lump sum give you a discount on future purchases? This adds a new dimension, in that we are guaranteed priority scheduling on any repairs. Unlike an extended warranty, this deal allows us to economize on our time when we need repairs. On purely monetary grounds it probably doesn’t pay for itself; but figuring the opportunity cost of my time or my wife’s at one-third our wage, the time saved more than justifies joining the “Ben Franklin Society” for the plumber, or the Silver Medallion Society with the HVAC firm. I would bet that those buying these additional services are disproportionately high-wage people; but who’s buying extended warranties?