HEURISTICS AND BIASES IN TIMING THE REPLACEMENT OF DURABLE PRODUCTS

The process by which individuals make recurrent decisions about when t o replace durable goods is examined. Two experiments are reported in w hich subjects play the role of purchasing agents who must repeatedly d ecide whether to keep a currently owned manufacturing device or replac e it with a superior new one, given uncertainty about the future perfo rmance of new and currently owned machines. Replacement patterns are c ompared with those that would be predicted if subjects made decisions as rational economic agents, following the principles of optimal repla cement theory. This comparison reveals a number of systematic departur es from optimality that do not vanish with experience. Among these are a tendency to replace at a slower rate than would be predicted by nor mative theory and a tendency to weigh opportunity costs arising from o bsolescence 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 findin gs are interpreted in terms of known biases in decision making under u ncertainty in dynamic and static settings.