HEURISTICS AND BIASES IN TIMING THE REPLACEMENT OF DURABLE PRODUCTS

The process by which individuals make recurrent decisions about when to replace durable goods is examined. Two experiments are reported in which subjects play the role of purchasing agents who must repeatedly decide whether to keep a currently owned manufacturing device or replace it with a superior new one, given uncertainty about the future performance of new and currently owned machines. Replacement patterns are compared with those that would be predicted if subjects made decisions as rational economic agents, following the principles of optimal replacement theory. This comparison reveals a number of systematic departures from optimality that do not vanish with experience. Among these are a tendency to replace at a slower rate than would be predicted by normative theory and a tendency to weigh opportunity costs arising from obsolescence greater than those arising from product deterioration. In addition, subjects display a bias against making replacement purchases given short lapses of time since the previous replacement. The findings are interpreted in terms of known biases in decision making under uncertainty in dynamic and static settings.