The Upgrade Effect

Stuff.  We all buy it and need it.  In a post a few years back I laid out my three rules of stuff, coming from a frugal and financially independent mindset.  And recently I posted about maximizers and satisficers and how they each respectively decide on purchases in a world with an overabundance of choices. 

For me personally, the ability to avoid unnecessary upgrades has been a crucial tool in my financial independence toolbox.  I recently stumbled across a paper in the Journal of Marketing Research that proposes a theory about consumer behavior when faced with the possibility of a product upgrade.  It’s a fascinating piece of research so let’s dive in.

 

The Upgrade Effect

The paper titled “Be Careless with That!” Availability of Product Upgrades Increases Cavalier Behavior Toward Possessions proposes this:

…we propose that individuals become careless and negligent with their products when in the presence of appealing, though not yet attained, product upgrades. We label this phenomenon the “upgrade effect” and suggest that such careless tendencies are intended to promote the acquisition of upgrade products by helping consumers justify the new purchase. Our research is of particular relevance to modern production systems, which have significantly increased the pace of product innovation and the introduction of newer products over the past decades.

In a nutshell the authors are suggesting that people intentionally play fast and dangerous with their stuff when they know a desired upgrade is available, in hopes that they break or lose it.  They call this behavior “motivated carelessness”.  I’m appalled but not so surprised at the same time. 

And they elaborate on the reason for this “motivated carelessness”:

Accordingly, we propose that motivated carelessness is driven by the need to justify the attainment of upgrade products, consistent with the notion that consumers have a strong desire to justify their decisions and base their choices on reasons.

So apparently consumers do realize they’re being wasteful in wanting an upgrade when they have a product that still works fine.  But motivated carelessness allows them to justify their insatiable lust.  “Ooops, did I just drop my phone in the toilet?  Oh well, time to get the new one, woo-hoo!”.

 

You Can Justify Anything If You Try

What I really like about this study is it tries to dig as deep as possible into the motivations, justifications, and behaviors behind the upgrade effect.  Take this passage for instance which is fascinating:

During their ownership of a good, consumers mentally amortize the initial purchase price and, when considering an upgrade, determine whether they “got their money’s worth” on the last purchase. If the old product is still functional and not fully depreciated in the mental account, the decision to upgrade to a new product is painful, as the consumer must write off the remaining “mental book value” as a loss. Thus, the pain associated with retiring a good before its mental account is fully amortized often hinders the upgrade purchase. Moreover, even when a product is at the end of its presumed life cycle, consumers still display a strong aversion to waste and unused utility when deciding whether to discard the product for good.  But what if a product became no longer functional, was damaged, or was used up ante tempore? In this case, consumers could purchase an upgrade before the expected time without appearing wasteful or experiencing guilt.

When I read about this process of mentally amortizing a product based on the purchase price, it hit home for me.  I do this all the time.  I often look at an item I own and think “Did I or am I getting my money’s worth from that thing?”. 

If the answer is no, I consider selling it or possibly using it more.  Why have it if I’m not using it? 

I also would feel horribly guilty at upgrading something that works fine.  To be honest I just wouldn’t do it unless I can sell the old one for a fair value or give it to someone in need.

 

Where’s My iPhone? …Who Cares, Look A New Model!

The authors of this paper took the analysis of the upgrade effect to a new level by analyzing real data and even conducting experiments.  First they looked at real data of lost iPhone’s as reported through the official IMEI Detective website.  What did they find? 

Using real reported losses of iPhones as a proxy for consumers’ careless behavior, Study 1a shows that people are less likely to report the loss of an owned phone when an upgrade model is available in the market, even when we control for the total number of phones sold. 

In the end they conclude that consumers “have little insight onto the effect of upgrades on how they treat their own products.”  In other words, people don’t realize that the mere existence of a better version of something is affecting their behavior and how they treat their possessions.

“So, we use our phone in the rain or leave our laptop behind at airport security without being aware that our carelessness has an underlying motivation.”, says Professor Silvia Bellezza, one of the coauthors of the study.

 

We’re Different

I’m guessing that many or even most folks in the financial independence community are outliers when it comes to the behaviors cited in the study.  I know I am.  I treat virtually all of my possessions with kid gloves even though I generally have really old stuff and there are better versions of practically everything I own. 

“Motivated carelessness” is not something you’ll find me engaging in.  I simply don’t want my stuff to break, I want it to last.  I want to wear it out and get full use of it, or have it “fully amortized” as the authors say.  Replacing stuff costs money and creates waste.  And I don’t like wasting money or unnecessarily adding to landfills. 

I’ve blogged about my now 37 year old lawn mower (still going strong), my $19 coffee maker that lasted 18 years, and my old cars.  But I’m not going to lie and pretend I’m perfect and talk down to anyone who hasn’t been so conscious of their upgrade decisions. 

When digital camera technology was increasing at light speed in the late 2000’s I pursued a few silly upgrades to my camera.  I was chasing megapixel count and optical zoom levels.  And the camera companies kept upping the ante every six months. 

To be fair to me I was at least selling the old ones to recoup some cost, but in retrospect it was silly behavior that didn’t help me on my inevitable journey to financial independence.  So yeah, we’re all human and we have our lapses. 

But this study highlights the fact that in today’s environment of unlimited everything and better versions every week, achieving financial independence demands an awareness of the behavioral tripwires that cross our paths everyday. 

Your turn – Have you been guilty of needless upgrades? Have you ever been happy that something of yours broke because it gave you permission to get an upgrade?