Latest / Behavioral Economics with Fexingo: Decision Making, Bias, and How People Really Spend / Why Your Brain Treats a Subscription as a Sunk Cost Trap
Transcript
- Lucas: Okay, let's talk about the subscription that you're paying for right now and never use. Luna: Oh, I already know where this is going. Lucas: You probably have at least one. A 2025 survey by C+R Research found the average American spends seventy-three dollars a month on subscriptions they don't actively use. That's nearly nine hundred dollars a year. Luna: And that's just the average. I know people who have three streaming services, a gym membership, a meal kit, and a meditation app — all on autopay, all collecting dust. Lucas: Right. So the behavioral question is: why don't we cancel them? It seems irrational. You're literally throwing money away. But the answer lives at the intersection of two powerful biases: the sunk cost fallacy and what economists call subscription inertia. Luna: Let's start with sunk cost. That's the classic one — you've already paid for it, so you feel like you have to use it to justify the expense. Lucas: Exactly. But here's the thing — the money is already gone. Whether you go to the gym or not, that hundred bucks a month isn't coming back. The rational decision is to only consider future costs and benefits. But our brains don't work that way. We treat the past payment as an investment that we're obligated to recoup. Luna: And the longer you've had the subscription, the harder it is to cancel. That's the inertia piece. You build a history with it. Lucas: There's a really interesting study from the Journal of Consumer Research a few years back. Researchers looked at gym membership cancellation rates. They found that people who paid monthly were significantly less likely to cancel than people who paid per visit — even when the per-visit cost was lower. The monthly members felt like they had already invested in the habit. Luna: So the subscription model is designed to exploit this. Companies know that once you're in, you're likely to stay. Lucas: Absolutely. They structure pricing to minimize the pain of signing up — low monthly fees, free trials — and maximize the friction of leaving. You have to call, or fill out a form, or wait on hold. That friction is deliberate. Luna: It's a behavioral design pattern. They're banking on inertia and loss aversion. You'd rather keep paying than feel the loss of cancelling something you've committed to. Lucas: There's also a concept called 'payment depreciation.' When you first sign up, the cost feels salient. But after a few months, that monthly charge becomes background noise. It's just another line item. So the pain of paying fades, but the mental commitment remains. Luna: That's a great term. Payment depreciation. So by month six, you're not even thinking about the fifteen dollars for that app you opened once. Lucas: Exactly. And here's another twist — the 'use it or lose it' mentality. For subscriptions like gyms or streaming, people feel guilty if they don't use it. That guilt actually prevents cancellation, because cancellation feels like admitting failure. Luna: So you're trapped by both the past payment and the future guilt. No wonder the industry is worth billions. Lucas: And it's not just consumer subscriptions. Think about software as a service for businesses. Companies often keep paying for tools that nobody uses because the sunk cost is tied up in training and implementation, not just the monthly fee. Luna: Right. The switching costs are higher, but the psychology is the same. Lucas: So what can listeners do? A practical tip: set a calendar reminder every quarter to audit your subscriptions. Look at your bank statements. Ask yourself: 'If I weren't already subscribed, would I sign up today?' If the answer is no, cancel. Luna: That's the 'zero-based budgeting' approach to subscriptions. Treat each one as a new decision. Lucas: Exactly. And another trick: use a service like Rocket Money or Trim to track recurring charges. Sometimes you don't even know what you're paying for. Luna: I actually did a subscription audit last month. I found a ten-dollar charge for a cloud storage service I forgot I ever signed up for. Hadn't used it in two years. Lucas: That's exactly the kind of thing that adds up. And it's not about blaming yourself — our brains are wired to ignore steady-state expenses. The trick is to make them visible again. Luna: Speaking of visibility, you know what else keeps this show going? Listeners who support it. Lucas: Yeah, it's a good point. This podcast is ad-free, and that's because of people who chip in a couple of dollars a month. It genuinely makes a difference — covers hosting, research time, the whole operation. Luna: If you've gotten value from these episodes, especially the ones that helped you save money or understand your own behavior, consider throwing a few bucks our way at buy me a coffee dot com slash fexingo. Lucas: It's a small way to keep this independent and free for everyone. Anyway, back to subscriptions — there's one more bias I want to mention. Luna: Let's hear it. Lucas: The 'endowment effect' — we overvalue what we already own. That applies to subscriptions too. Once you have access to something, you overestimate how much you'll miss it if you cancel. Luna: So you keep paying for Netflix because you might want to watch that one show someday. Lucas: Exactly. The potential future use looms larger than the actual past usage. There's a study from Stanford that showed people would pay more to keep a subscription they already had than they would to acquire the same subscription new. That's pure endowment effect. Luna: So the solution is to actually look at your usage data. Don't rely on memory. Lucas: Right. Streaming services make it easy — they show you how many hours you watched last month. If it's zero, you have your answer. Luna: I think the key takeaway is that subscriptions are a cognitive tax. They rely on us not paying attention. Lucas: That's a great way to put it. And the fix is simple: pay attention. Set a date, review, cancel. It's a small habit that can save hundreds of dollars a year. Luna: And if you're a business owner, think about how you structure your own subscriptions. Are you keeping tools just because you've already paid for them? Lucas: Great point. The same bias applies at every level. Alright, next time we'll talk about how companies use 'decoy pricing' to steer you toward the most profitable option. Luna: Looking forward to it.