«Warranty of misinforming as an option in product utiliza- tion process. Informing Science: the International Journal of an Emerging Transdiscipline, ...»
Informing Science: the International Journal of an Emerging Transdiscipline Volume 19, 2016
Cite as: Christozov, D., Chukova, S., & Mateev, P.. (2016). Warranty of misinforming as an option in product utiliza-
tion process. Informing Science: the International Journal of an Emerging Transdiscipline, 19, 75-87. Retrieved from
Warranty of Misinforming as an Option
in Product Utilization Process
Dimitar Christozov Stefanka Chukova American University in Victoria University of Bulgaria, Blagoevgrad, Wellington, Bulgaria New Zealand email@example.com firstname.lastname@example.org Plamen Mateev Sofia University “St. Kliment Ohridski”, Sofia, Bulgaria email@example.com Abstract The following definition of “option” is given in Wikipedia - “In finance, an option is a contract, which gives the buyer (the owner or holder) the right, but not the obligation, to buy or sell an un- derlying asset or instrument at a specified strike price on or before a specified date, depending on the form of the option” (“Option,” n.d.). Option as a risk management (mitigation) tool is broadly used in finance and trade. At the same time, it introduces asymmetry in the sense that, probabilis- tically, it limits the level of losses (e.g., the price of the option) and allows for unlimited gains. In the market of sophisticated devices (as smart phones, tablets, etc.), where technologies are rapidly advancing, customers usually do not have the experience to use all features of the device at the time of the purchase. Due to the lack of appropriate expertise, the risk of misinforming, leading to not purchasing the “right” device is high, but given enough time to learn the capabilities of the device and map these to the needs and tasks that device will be used for, could provide the client with substantial long term benefits. Warranty of misinforming is a mechanism that provides the client with the opportunity to explore the device and master its features under limited risk of fi- nancial losses. Thus, the warranty of misinforming could be considered as an option - the custom- ers buy it (at a fixed cost) and may gain (theoretically) unlimited benefit by realizing (within the terms of the warranty) that the device can be used to solve a variety of problems not envisaged at the time of purchase. In this study we present the idea of treating the warranty of misinforming as an option in finances and provide examples to illustrate our viewpoint.
Introduction The market of complex and technologically advanced devices is growing quickly, offering many challenges to all involved parties. The major challenge is that many new features are included in the next generation devices and these new devices show up on the market almost on a daily basis.
This quick turnaround does not allow the customers to learn how to fully utilize the device’s built-in features. Additionally, the smart devices allow an easy extension of their capabilities by adding a variety of on-line applications.
All of the above significantly affect the risk of misinforming. Usually, at the time of purchase, the seller is not familiar with the problems/tasks the costumer aims to solve with the device and therefore is not able to provide in depth advice. The customer has to gain experience in using the device and mapping its features to the problems/tasks s/he faces. Also, often it is difficult to realize that a newly encountered problem/task can be addressed by the same device as the customer was not aware of this possibility at the time of purchase and, of course, s/he had not included those in her/his purchasing motivation.
This shows that there might be also some positive outcomes of misinforming. The option of having positive effect of misinforming has not been emphasized in any earlier studies and definitely deserves some attention. When it comes to these positive outcomes, the information asymmetry between the seller and buyer is not critical for quantifying the risk of misinforming, and moreover the information asymmetry cannot be reduced by improving the communication process between these two parties. In addition, even clients’ training would not necessarily reveal the hidden potential of the product and reduce the misinforming. The full benefit of the device for a particular client is usually understood, often by chance, via trials and errors and it is highly dependent on client’s ability to adopt quickly the incoming technical advances for the device.
Nowadays purchasing decisions have to incorporate a new source of uncertainty: whether to buy a more advanced and expensive device, or to limit the purchase to a device that will allow accomplishing only the set of tasks, as identified at the time of purchase? In other words, the client is facing the following dilemma: buying a low price device with limited opportunity for future benefits vs. paying a high price for a device with unknown potential benefits. This is a typical scenario that motivates options launching in trade and finance.
The warranty of misinforming could be interpreted as an option in product purchasing: within a low risk environment, it provides the clients with the chance of trying and experimenting with the device, i.e., with some learning opportunities regarding the device. The cost of this “option” is the learning time – time spent to explore the device, plus the cost of purchasing the warranty. Depending on the warranty policy the latter cost might be refundable.
The concept of misinforming, as an incorrect interpretation on behalf of the client of otherwise correct information provided by the sender, is well defined within Informing Science literature (see for example E. Cohen, 2007, and the book “Foundation of Informing Science”, edited by Eli Cohen and Grandon Gill, 2009). Warranty as a factor for informing quality is introduced by Zbignew Gackowski (2007). Studies on different aspects of how warranty may affect the risk of misinforming are presented in numerous of our publications (Christozov, Chukova, & Mateev, 2014). We define “the warranty of misinforming”, within the frame of Informing Science, as the tool providing the client a “risk free” period to verify the usefulness of received information within the context of faced problems. The warranty of misinforming is especially applicable within a commercial Selling-Buying transaction in acquiring a new product. So far, we had studied the negative effect of misinforming. In this study we address the positive impact of warranty of misinforming.
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To illustrate the above idea, let us consider the case of buying a smart phone. The initial need is to obtain a device that will allow the client to make calls and to exchange text messages. The customer has many options, from relatively cheap to extremely expensive devices, which allow him/her to accomplish these tasks. Let us assume also that the price corresponds to device’s properties (e.g., the size of the screen). After buying a smart phone, the client discovers that there is a huge set of applications, developed by various entities, available on-line. Installing an appropriate application enriches the device’s capability to solve different problems/tasks. Let us assume that the customer has installed an application, which allows for the smart phone to be used as a GPS navigation system and that the business of the client includes driving in unknown areas delivering goods. The new navigation system will increase the client’s productivity by decreasing the time needed to locate the required destinations. Unfortunately, the client realizes that s/he had not bought the best device to address this task, because the device’s screen is too small. At the time of purchase the screen was chosen according to the initially recognized needs (Figure 1) and the newly added task of “navigation” was not taken into account.
Typically, the warranty of misinforming provides the client with a “free” trial period for familiarizing himself/herself with the device. The price client pays for this “free” trial period is the charge for the warranty and the time spent learning the features and capabilities of the device. In the case of a smart device, its capabilities can be supplemented by apps and add-ons produced by a huge number (millions) of vendors. Obviously, the primary producer of the device is not in a position of comprehensively “informing” the clients about these additional capabilities. Moreover, at the purchase time even the client does not know what will be the most beneficial usage of the devices.
In the above example, the navigation property of a smart phone turned out to be very beneficial for our specific customer. This additional utility of the device has been discovered by learning and installing an appropriate application well after the initial purchasing decision.
Therefore, based on the above comments, we can conclude that purchasing a warranty of misinforming for a device could be considered to be equivalent to purchasing an option in financial context. One may decide to purchase more complex and technically advanced device with better properties and higher quality (e.g., larger screen) and to explore it during the trial period, to learn whether it can be beneficial for accomplishing tasks beyond the originally recognized set of tasks.
In this example “the navigation” is an extra task, beyond the initial set of tasks of “making calls and exchanging text messages”.
This study maps the option risk mitigation principles to the risk of misinforming and explores the specific properties of warranty of misinforming when considered as an option. In the next section (Background) the foundations related to the risk of misinforming and option principles are presented from warranty of misinforming as an option viewpoint. The section “The Model” maps warranty of misinforming as an option to risk of misinforming, discussing the sources of costs and benefits. In general, we elaborate on the following idea: the warranty of misinforming for a smart device has pre-specified limited cost, but advanced utilization of the device may bring unlimited potential benefit.
Further, we discuss the case of “warranty of misinforming” as an option from several different aspects. It is well known that the clients’ main benefit from this warranty is the opportunity to study the features of the device with no risk. In addition, the learning opportunities are not limited only to the properties of the device, but extend to mapping the client’s problems/tasks to solutions enhanced by the available technical advances for the device, e.g., apps, add-ons, etc. Identifying such learning opportunities is the main effect of positive misinforming: firstly, the buyer underestimates the potential of the device, and secondly, while the buyer utilizes the product to solve his/her initial set of problems/tasks, s/he realizes that the product – the smart device – is suitable to solve problems/tasks of larger scale than initially thought.
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The paper enriches the understanding of warranty of misinforming as a factor for enhancing informing quality not only by reducing the negative aspects of misinterpretation, but also by serving as a learning tool for acquiring more comprehensive understanding of the meaning and impact of provided message.
Background Information Asymmetry What is the main reason for the existence of information asymmetry? Information asymmetry is
due to the communication process environment:
1. The seller is an expert on the features, specification, and properties of the product/device.
2. The client has a limited expertise on the properties of the device and has a set of prespecified problems/tasks that has to be solved by using the device.
3. The communication process between the seller and buyer does not fully reveal the properties of the device during the sale process, i.e., the expertise mismatch of the two parties leads to
• a positive purchase decision - buying a device that is not suitable for client’s tasks, or
• a negative purchase decision – not buying a perfectly suitable for client’s tasks device.
This is a two-sided information asymmetry, which typically can be reduced by improving the communication process. For more see Christozov, Chukova, and Mateev (2009, 2011, 2014). In the case of the product being a smart device, usually there is a list of client’s problems/tasks that were not related to the product, and even more, were not targeted by the producer at the product design phase. These additional problems/tasks are not identified and communicated with the producer or supplier prior to the purchase. It is well known that the usage of smart devices in carrying out specific tasks is highly individual and in general it might be impossible for the producer to envisage all potential usages of the device for solving the client’s additional tasks.
Finally, there are two types of possible contributions in “producing” smart devices: (1) producing the device itself (such as Apple, Samsung, etc.) and (2) developing applications for the device (theoretically everyone may develop and promote his/her smart device application on the market).
This makes the task of reducing information asymmetry via improving communication between the parties involved in the purchase practically unsolvable. Because everyone with appropriate skills may develop an application, and most of these applications are easily available on-line, the actual number of “producers” is unlimited and a direct communication with all of them is impossible.