Consumers finding it hard to toss old products

In the world of consumerism, constantly upgraded products are at our fingertips literally with the touch of a button.

With this comes a tendency for people to accumulate old things and refuse to get rid of them even if they are no longer usable, found a study by business school assistant professor Erica Okada.

Okada's investigation showed that in many cases upgrade buyers suffer from the "sunk cost effect." The effect is more commonly know as being a pack rat.

Her aim was to find out why the economic model does not predict this behavior. The economic model would suggest that if a consumer needed or wanted to upgrade, the cost of the old model would have to be recognized as invested and gone.

Instead, consumers are falling into this "sunk cost effect."

Okada said sunk cost is defined by the two following conditions: The purchase is an expenditure that was made in the past, and that expenditure is irrecoverable.

Okada defined the sunk cost effect as "a pattern where instead of ignoring ... [costs] in prospective decision-making as they should, people try to get their money's worth by engaging in irrational behavior."

This includes wearing or holding on to clothes that no longer fit or getting more food at the buffet line even after one's appetite is satisfied.

"Economic theory assumes that consumers make rational decisions in order to maximize their utility [HTML_REMOVED] for example, become as well-off as they can," she said. "It makes no rational sense that a consumer would continue to wear clothes that no longer fit or go back for the third serving at a buffet line just because he has paid for it, but we see this type of behavior all the time."

Carson Fisco, a freshman, identifies himself as a pack rat. He has upgraded his mobile phone twice now, but he has not gotten rid of his old models.

"I guess the reason, well, I don't really know why, but I guess I still like them," Fisco said. "I never use them anymore. I just don't want to throw them away."

Fisco also admits to never throwing out clothes that no longer fit him.

He gives them to his brother, though sometimes his brother does not want the clothes.

"Then the clothes just end up in my closet," Fisco said. "My girlfriend eventually had to go through my closet and donate my old clothes."

In an article printed last month in the UW business school's newsletter, "Bargain or waste of money? Consumers don't always agree," Nancy Gardner summarized Okada's conclusions to the study.

"These findings demonstrate how the decision-making process is different when there is a mental cost versus when there is not, and they apply to the comparative preferences of upgraders versus first-time buyers," she said. "First-time buyers do not incur any mental cost in purchasing a new model, and upgraders do."

Okada's solution to being affected by the sunk cost effect is to consider the opportunity cost.

Okada defined opportunity cost as "what you are giving up in order to take your decided course of action."

It requires the consumer to be aware of the sunk cost, recognize it and be able to see the opportunity cost in the sacrifice of what is being given up.

"For example, by wearing clothes that no longer fit, you are giving up the opportunity cost to be fashionable," she said. "By going for the third serving, you are giving up the opportunity to feel good instead of nauseated."

Contributing writer Karim Boukabou: development@thedaily.washington.edu