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: So, I‘ve been staring at a number all week that I can‘t shake. A 2025 study out of the University of Chicago—they tracked subscription behavior for a $10 monthly streaming service. After three months, people who rated the content as 'poor' or 'fair' were still 40 percent less likely to cancel than new users. Luna: Forty percent? That‘s wild. So they‘re basically admitting they don‘t like it, and they stay anyway. Lucas: Exactly. And the researchers controlled for income, for how often they logged in—it wasn't about 'I might watch later.' It was pure refusal to pull the plug. And you see this pattern everywhere. Gym memberships, software licenses, even those box of the month things you forget about until the charge hits. Luna: I think I‘m guilty of this right now with a magazine subscription I haven't opened in a year. But what I find interesting is that the study says the sunk cost fallacy alone doesn't explain it. Because the $10 is already gone—you can‘t get it back by staying. Lucas: Right. The classic sunk cost logic says you should ignore the past expense and decide based on future value. But the researchers found two other forces at work. One is inertia bias—cancelling requires effort. You have to log in, find the cancellation page, maybe talk to a chatbot. The other is something they called 'endowment effect for access.' You start to feel like you own the possibility of watching. Giving that up feels like a loss. Luna: So the subscription becomes a kind of property right in your head. You‘re not paying for the content anymore—you‘re paying to keep the option open. Lucas: That's exactly the phrase. And the study tested a counterintuitive fix. They framed one group's subscription as a 'prepaid pass'—like, you bought a month of access, no auto-renewal. That group had a 22 percent higher cancellation rate at the end of the month. Because the cost felt like a one-time decision, not an ongoing commitment you have to actively break. Luna: Interesting. So the auto-renewal model is essentially exploiting our inertia. And that's why regulators in Europe and a few US states have started requiring 'click to cancel' laws—where cancelling has to be as easy as signing up. Lucas: But here's the thing: even with those laws, the psychology doesn't disappear. You still have to decide to click. And the endowment effect for access is still humming in the background. I think the real question is whether we can design subscription products that respect our own biases. Like, what if every subscription came with a built-in quarterly 'check-in' where you have to actively confirm you're still getting value? Luna: Like a subscription bill of rights for your own brain. I could get behind that. Lucas: And by the way, this is exactly the kind of thing we explore on this show—how the economy really works in your head, not just in the textbooks. If walking through the economy with us has made something click for you, listener support is what keeps this show ad-free and independent. You can buy us a coffee at buy me a coffee dot com slash fexingo. That's buy me a coffee dot com slash fexingo. No pressure at all—just helps us keep diving into these behavioral rabbit holes. Luna: Yeah, it honestly makes a difference. And it lets us stay focused on the research, not the sponsors. Lucas: So back to that study. The researchers also found that people who were told 'you've already paid, so you might as well get your money's worth' actually stayed longer. That framing reinforces the sunk cost instead of countering it. The better nudge was reminding people: 'The money is gone. The only question is whether you want future months to be wasted too.' Luna: That‘s a much harder message to hear, but it's the rational one. It's interesting that the prepaid pass framing worked better than that rational reminder, though. Lucas: Because it changed the structure, not just the message. You don't have to fight your own inertia every month if the subscription just ends. And that's the design insight: build the default to favor the user, not the company. Luna: I wonder how many gyms would survive a prepaid-pass model. Lucas: Probably not many. And that tells you something about the business model. Anyway, the takeaway for me is: next time you're hesitating to cancel something you don't use, ask yourself—are you protecting the option, or are you protecting a feeling of ownership over something that's already expired? Luna: That‘s a good question to leave on. I think I've got a magazine to cancel. Lucas: Same. I'll race you.