Making Decisions For the Future: Value of Delayed Durables and Shrinkage in Usage Duration

Durable goods provide not only immediate benefits but also an extended stream of benefits over their usage duration. Consumers often face situations where they have to make purchase decisions for durables available only after a delay. Delayed purchase of durables are challenging both to consumers and retailers. For consumers, they should appropriately compare a future alternative to any available immediately and decide whether it is worth delaying their purchases. Such decisions are essentially intertemporal tradeoffs. For retailers, selling goods not in stock is challenging as they have to consider appropriate financial incentives for inducing consumers to delay their purchase (e.g., price discounts for back-orders). How consumers change their valuation for alternatives depending on temporal availability will clearly impact the level of monetary compensation.

Past work on intertemporal decision making has repeatedly shown that delayed alternatives look less attractive than immediately available ones. This may be due to individuals preferring immediate over delayed consumption, uncertainty associated with future preferences, or subjective perception of delays. Note that these factors are likely to influence the discounting of all types of goods like monetary outcomes or consumables as well as durables.

Durables, however, are different from other types of goods because they provide a stream of utility over a usage duration. For instance, a television purchased today provides benefits starting from the purchase time till the time of discard. Does using a product over a duration have implications for how their benefits are discounted? Past work provides little direction. In fact, some past research has tested factors impacting time discounting using durables but reports no systematic difference in preference for durables and for monetary outcomes.

In the current article, we seek to investigate how durables are discounted and, in particular, what role does usage duration play in this process. We posit and find evidence that consumers subjectively shrink the expected usage duration associated with durables that are expected to be purchased in the future. That is, they expect to use the same durable for a shorter period of time when it is purchased in the future than immediately. This shrinkage in usage duration serves as a factor of time discounting in addition to other factors such as time preference or uncertainty in future preference (which are unrelated with usage). As a result, a future durable looks even less attractive than an immediate one even after accounting for all factors known to influence time discounting.

Supporting our premise on the shrinkage in usage duration, we found evidence for the shrinkage effect in usage duration in two types of judgment: estimation of unknown usage duration and subjective perception of a known duration. In study 1, we show that estimated usage duration shrink when a durable (e.g., a smartphone) is planned to be purchased in the future as compared to the present. In study 2 and 3, we demonstrate the shrinkage effect in subjective scaling of a given duration that is objectively given to participants.
Demonstrating the implication of the shrinkage effect, in study 4 we show that individuals’ tendency to shrink future usage durations (relative to usage durations starting from the present) is an important determinant of their impatience for durables. That is, those who shrink future usage duration more would expect to use the same durable purchased in the future for a shorter period of time as compared to those who shrink it less. As a result, the former consumers would discount the value of delayed durables more and would become more impatient for immediately available durables than the latter consumers.

In study 5 we further demonstrate that the shrinkage effect in usage duration would result in more impatience for durables than for monetary outcomes, if all other conditions are equal. Note that various factors known to influence time discounting for monetary outcomes such as pure time preference, uncertainty, subjective perception of delays, and various individual and situation factors would influence time discounting for durables as well. But the shrinkage effect in perceived usage duration is a unique factor that influences only the time discounting of durables. Therefore, if all other conditions are equal, consumers would be more impatient for durables than they would be for money.

Taken together, our results demonstrate the important role of usage duration and its judgment in determining consumers’ intertemporal preference for durables. We also discuss the implications for retailers in determining the optimal level of monetary compensation for delayed durables.