You buy a $119 cordless phone system at Wal-Mart. As you're checking out, the cashier asks if you'd like to put another two years on the manufacturer's warranty. Cost: $29.

What do you do?

Although consumer groups and common sense would urge you to resoundingly reject the offer, an entire industry has been built on the likelihood that you will act on impulse and say yes.

Each year, millions of people gladly pay up to half of a product's original price to extend a warranty. These purchases help fuel a booming, $15 billion-a-year business and feed a lucrative profit stream for retailers that sell the warranties and companies that underwrite them. Many consumers say the plans give them peace of mind.

But "the things make no rational sense," Harvard economist David Cutler said. The probability that a product will break "has to be substantially greater than the risk that you can't afford to fix it or replace it. If you're buying a $400 item, for the overwhelming number of consumers, that level of spending is not a risk you need to insure under any circumstances."

Extended warranties, first introduced in high-pressure fashion by big electronics stores in the late 1980s, have become a core product sold by all kinds of retailers, covering everything from bicycles to wedding jewelry.

Extended warranties generally lengthen the coverage provided by the manufacturer's own warranty on a product. While terms vary widely, the plans typically last from one to three years. Many policies do not cover accidents or normal wear and tear -- the most common causes of breakdowns in common household goods.

But most important, consumer advocates say, the vast majority of extended warranties are never used, because most products do not need a repair or, worse, the extended-warranty provider refuses to cover the repair or makes it such a hassle that it makes more sense to pay for it on your own.

Security blanket

Many consumers who normally would resist the hard sell on the warranties occasionally give in. Adam Weiner, 24, a computer engineer in Arlington, Va., recently bought a 37-inch Sharp LCD television for $1,644. He paid $450, or an additional 27 percent, for a five-year extended service warranty.

"I usually don't buy" extended warranties, he said. "But the [television] cost so much. It's impossible to buy a decent flat screen for less than a grand. I wanted to protect my investment."

Weiner's decision speaks volumes about how extended warranties play upon a basic human trait to avoid loss, even if it means sacrificing a possible future gain. In this case, the gain is all the other things of value that a consumer could buy with the money that was spent on a warranty.

The instinct to protect what we have and is has long been studied by behavioral economists. Even without knowing from experience that a product will break, many people insure it anyway, said Kevin McCabe, an economist and director of the Center for the Study of Neuroeconomics at George Mason University.

That reliance on gut instinct points to an inherent disadvantage for consumers in the purchase process, economists and consumer advocates say. Buying an extended warranty is vastly different from selecting most other insurance products. When buying car insurance, for instance, it's relatively easy to compare and make an informed decision.

But when deciding whether to buy an extended warranty, it is nearly impossible to comparison shop from the checkout counter.

Then there's the question that may not occur to many buyers.

"Why do I need an extended warranty on a phone I'm going to replace in two years anyway? Or one year?" said Greg Brue, a quality consultant and expert on product life cycles who runs Six Sigma Consultants in Albuquerque, N.M.

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