This document discusses the expected value of purchasing AppleCare extended warranties for various Apple products. It calculates the probability of failure needed for the warranty to be worth the cost. For most products, like iPods, the chance of failure would need to be very high, around 30% or more, for AppleCare to have positive expected value. For more expensive items like MacBooks and iPads, the chance of failure only needs to be around 15-20% to justify the warranty. The document concludes by questioning why people purchase extended warranties given the math typically does not favor the consumer.

1. An AppleCare a Day

2. Preview
Would you buy the extended warranty?

3. Act One: 1
Expected Value of AppleCare
$49 $299 $1,499 $1,499
1%
Prob. of Failure
10%
50%

4. Act One: 2-4
Expected Value of AppleCare
$49 $299 $1,499 $1,499
1% $0.49 $2.99 $14.99 $14.99
Prob. of Failure
10% $4.90 $29.90 $149.90 $149.90
50% $24.50 $149.50 $749.50 $749.50

5. Act Two: 5-6
Fine Print

6. Act Two: 7
What would the chance of failure have to be to justify AppleCare?
Product iPod Shuffle (2GB) iPod Nano (8GB) iPod Touch (8GB) iPod Touch (32GB)
Item / AppleCare $49 / $39 $129 / $39 $199 / $59 $399 / $59
Chance of Failure
Product iPad (Wi-Fi, 16GB) iPad (4G, 64GB) 15-in. MacBook Pro 27-in. iMac
Item / AppleCare $499 / $99 $829 / $99 $1,799 / $349 $1,999 / $169
Chance of Failure

7. Act Two: 7
What would the chance of failure have to be to justify AppleCare?
Product iPod Shuffle (2GB) iPod Nano (8GB) iPod Touch (8GB) iPod Touch (32GB)
Item / AppleCare $49 / $39 $129 / $39 $199 / $59 $399 / $59
Chance of Failure 80% 30% 30% 15%
Product iPad (Wi-Fi, 16GB) iPad (4G, 64GB) 15-in. MacBook Pro 27-in. iMac
Item / AppleCare $499 / $99 $829 / $99 $1,799 / $349 $1,999 / $169
Chance of Failure 17% 12% 19% 8%

8. Just One More
Why do people buy extended warranties?