Don't Insure Small Items
I just noticed this quote from David Cutler (the Harvard economist who is known for advising Obama on health care):
Each year, millions of people gladly pay an additional 10 to 50 percent of a product's original price to extend a warranty. These snap purchases help fuel a booming, $15 billion-a-year business and feed a lucrative profit stream for retailers that sell the warranties and companies that underwrite them. Many consumers do so because they say the plans provide them with peace of mind.
The decision to buy an extended warranty, however, defies the recommendations of economists, consumer advocates and product quality experts, who all warn that the plans rarely benefit consumers and are nearly always a waste of money.
"The things make no rational sense," Harvard economist David Cutler said. "The implied probability that [a product] will break has to be substantially greater than the risk that you can't afford to fix it or replace it. If you're buying a $400 item, for the overwhelming number of consumers that level of spending is not a risk you need to insure under any circumstances."What is the theory by which 1) we should not buy insurance plans for fixing $400 electronic items, but 2) we should buy insurance plans that cover a huge number of sub-$400 healthcare expenses, from routine office visits to the cheapest prescriptions?