I would expect the market for extended warranties to be competitive. At least as competitive as the market for the product the warranty is slapped on. How can stores make so much profits on warranties but so little on the associated products?
The effect is amplified by two factors:
1. When the product is hedonistic, anticipated pleasure undermines rational thinking, and anticipated loss of almost-real-already pleasure (brought up by the sales agent) leads to excessive risk aversion
2. Timing. To pony up a large sum of cash one has to go through some emotional upheaval, and the moment right after that is the moment where a person is likely still convincing himself how valuable the purchase is. Anyone who didn't convince themselves is not buying, thus all buyers are either indifferent (not enough money) or momentarily very attached to the product. Timing is very important here and commands 100% higher margins as demonstrated by the 2x different between in-store and after-market warranty costs.
You are also neglecting an important factor - someone who is that much into forethought and rational decision-making (such as yourself) so that he is comparing extended warranties before shopping is more likely to buy after-market insurance or better yet skip it altogether because it's pointless.
In fact, I would prefer to shop in stores with more expensive extended warranty because such stores can allow lower margins on the products themselves.
The disappointment, however, is genuine as as the article points out the warranty is about 80% pure profit.
You're forgetting a very important fact: most participants on HN have highly analytical personalities. The rest of the world really doesn't see the need to examine everything so deeply.