What Is an Experience Good?

Alex Newth
Alex Newth
A book is a good example of an experience good, as the reader doesn't know until after reading it whether it was worth the money paid or not.
A book is a good example of an experience good, as the reader doesn't know until after reading it whether it was worth the money paid or not.

An experience good in economics refers to a product for which the consumer does not initially know the quality and value of the item, aside from the price tag. The good is usually a product such as a book or movie, and the value is discovered after consumption. A variant of experience good is a post-experience good, where the value is not entirely known even after consumption. A search good, in contrast, is a product such as a tool or plane ticket, for which the consumer knows the quality and value before consuming.

Of the many product types, an experience good is one for which the consumer does not know the value of the product before it is bought and used. These items are usually purchased for entertainment or as an impulse buy, and the buyer can only guess at the real value of the item before it is used. After using or experiencing the good, the consumer will know the true value of the item.

For example, a book is an experience good. There can be a shelf of books, all the same price, but the consumer does not know which ones are good and which are bad. After reading the book, the consumer should know if the book was worth the money.

Some variables can lead to an estimate of value before purchasing an experience good. If the consumer likes or knows the author, has skimmed through the pages, has read online reviews and has talked to friends about the book, then he or she may have an idea of its value. These variables help the consumer estimate, but he or she still will not know the true value until the product is consumed.

Post-experience goods go further than experience goods. With these products, the consumer does not know the true value of the item even after experiencing the good. Vitamins fit this description. Even after consumption, most consumers will not know whether vitamins are fulfilling their intended purpose.

In contrast to experience good products are search goods. These goods have a known value before they are purchased. For example, if someone buys a hammer, he or she knows what the hammer will be used for and how useful it will be. There are some variables that may increase or reduce this value, such as quality, material and color, but these variables are usually known before purchasing and consuming the product.

How Do Online Ratings and Reviews Change Examples of Experience Good?

Experience goods used to rely on a trial and error process conducted by the individual purchasing the products. A buyer might have a clue one way or another, based on privy information from a friend or a review in the paper or conversation at the local coffee shop, but no actual data available to support the value of the product against the cost until after they had consumed it for themselves. 

Online ratings and reviews not only changed examples of experience good products, but they changed the game entirely. Experience goods can be honed down to nearly a search good with the amount of data buyers now glean from rating and reviews systems. Remember that search goods are different from experience goods because buyers already know the price and value before consumption. 

Read the Reviews 

Books, for example, used to be one of the best examples to point to for an experience good. While it is arguably still an experience good, online ratings and reviews have taken almost all of the guesswork out of whether or not there will be value in the price paid for the book even before consuming it. 

Like-minded people who have read similar books, have similar tastes, and can speak to similar interests are trustworthy sources of information. The distant reviews on the back of the book jacket are no longer the only inkling into the product's true value. 

Estimation vs. Truth 

Consumption is an integral part of capitalism. Someone consuming an experience good and telling another person about it isn't enough. The mere estimation that the book would be pleasurable and of value just won’t cut it. That person must then go and experience it, too. They can challenge the person who recommended it if they disagree. Interestingly, long and lasting experiences called relationships are built on estimations. 

Post-Experience 

An additional challenge in recategorizing estimations into truths and experience goods into search goods is the tricky category of post-experience goods. In this category, the value of goods like specialty equipment, vitamins, shoes, technology, supplements, and other items cannot be readily qualified even after consuming them. There are too many variables present for a layperson to isolate the fulfillment of the intended purpose versus a placebo effect, alternate effects, or other goods present. 

However, simply because a task is difficult doesn't mean that people won't try. Thanks to reviews, more long-term data is available to pore over and parse out whether or not post-experience goods have potential to fulfill their purpose. While the information might not precisely redefine the category, it could help buyers better evaluate their purchase after consumption for efficacy and value. 

Are Experience Good Refundable?

Consumer and economic ethics come into play when considering whether or not experience goods are refundable. 

Buyer Beware 

When consumers buy experience goods, they know that there is a potential for the purchase not to be of value to them. Whether candy or a magazine, the impulse buys in the check-out line at the store might not be what they were expecting. However, the unknown is agreed upon when they enter the purchase agreement. 

With this information in mind, a person will rarely return a bag of chips from the check-out or a cooking magazine that turned out to have less than appetizing recipes. Part of the impulse is acting on the low risk involved in the purchase. While you might not love the product, you probably will find something agreeable from the consumption experience. It is alternatively valuable as a learning experience if you don't. 

Consumer Advocacy

On the other hand, consumer advocacy is essential in a free market. Experience goods are based mainly on opinion and, as a result, typically have highly regulated refund policies. 

Even with some search goods that have experience leanings, like airline tickets, the potential for an unpleasant personal experience is still present. In no surprise turn of events, airlines are notoriously tricky in negotiating refunds like other experience goods. 

Can a Vacation Package Be an Experience Good?

Vacation packages are typically straightforward: flights, lodging, meals, and other perks. You pay for what is included at a discounted price because everything is bundled. The value of the package depends on the goods and services you receive. Vacation packages also exist in the gray area with airline flights and other crossover goods. 

However, service and quality crossover into the experience good realm. Additionally, basic assumptions must be met to feel satisfied that what you are consuming is what you paid for, aside from any experiential opinions.

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Discussion Comments

B707

Surprise! I've never really thought about the sale of goods in this way before. It makes sense, though. Before I buy a book, I always ask friends, read reviews, and read the book jacket to find out the chances of it being a good book.

I'm trying to think of some more examples of experience goods. I suppose that restaurant meals would be experience goods as far as quality and taste. But you could get a glimpse of the presentation if another customer was served the same meal before you.

Cosmetics might be an experience good if you aren't able to sample the product beforehand. Even trying a sample wouldn't tell you everything about the product. For me, cosmetics are the one product that I often have "buyer's remorse."

Saraq90

@starrynight - Your comment about buying the experience good of books and just using the library for such books that you are unsure of, made me think of an interesting fact I just learned. You can borrow e-books on your e-book reader from the library (a.k.a. for free!).

Anyway, I think that I love experience goods and I think that beer for me is an experience good because I like to try different ones. So because I do not know what it tastes like and if I will like it then I do not know its quality or value except of course the price tag.

Anyone else do this with goods that could be just a search good (for example one would know the quality and value of the beer they always buy) and then turn the same type of good into an experience good?

I guess I may be stretching the meaning of an experience good, but that is probably just the speech-language pathologist in me (we think about the ins and outs of language most of the day at my job).

ceilingcat

@starrynight - Good point about getting books from the library. If they end up not being good, all you've wasted is your time, not your money.

Anyway, what struck me most about this article was the part about vitamins being post-experience goods. I take vitamins, and I do think that I can tell a difference in my health when I take them. However, I guess I don't really know for sure!

When you break it down that way, it actually seems kind of silly to buy vitamins!

starrynight

I'm an avid reader, so I guess I have a lot of experience with experience goods. Truthfully, I've never thought about the difference between buying a book and say, a beer. But I suppose there is a difference.

Still, I think that's actually part of the fun. I enjoy the mystery that a new book holds. Will it be good? Will it be my new favorite? Am I about to discover an awesome new author?

I've found that over the years, I've perfected my book buying to the point where I don't pick too many duds. But also, if I'm not sure about something I can get it from the library first. Then if I like it, I can buy it. Although I suppose a book that you've already read is no longer an experience good!

SteamLouis

I wonder if the type of good- experience or search- is very important for manufacturers?

I'm sure it makes a difference for them since it will affect their sales and profits. Do you know which type of good is more profitable, experience or search?

Or are there too many other factors involved to really say?

burcidi

I agree that reading product reviews or knowing a brand, and even product return and refund policies help relieve some of the worries associated with buying an experience good. But I still think that when it comes to these goods, you never really know what you're going to get. The only option is to purchase it and give it a try. It's a risk to take because you could end up hating it or not find it useful, but you could end up loving it too.

I'm a huge movie fan and I love buying and collecting DVDs of movies I like. But I don't always watch the film before I buy it. I generally just read the synopsis or see which actors are in the film and decide to buy it and see it. Yes, there have been times where I ended up not enjoying a film or two. But there have also been times when I read a bad review about a movie and still bought it and ended up loving it.

So when it comes to experience goods like movies, music and books, it has a lot to do with personal taste. That's why I don't take reviews too seriously. I buy it and decide the value of it myself.

And even if I don't like a product after buying, it's not such a big shock. I think we Americans do so much shopping that we have gotten used to this. I realize I waste some of my money shopping for experience goods, but doesn't everyone?

bear78

This makes a lot of sense. I had never thought about these terms and their meanings before. But after reading this article, I realize that whether a good is an experience good, post-experience good or search good, determines whether or not I buy the product and how much I think before I purchase it.

When I need a search good, something essential like bread or dental floss, I don't think about it at all, I buy it right away. But if I'm going to buy an experience good or a post-experience good, I think a lot because there is a chance that I could be disappointed and regret buying.

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    • A book is a good example of an experience good, as the reader doesn't know until after reading it whether it was worth the money paid or not.
      By: Photographee.eu
      A book is a good example of an experience good, as the reader doesn't know until after reading it whether it was worth the money paid or not.