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: Luna, I have a confession to make. I just realised I've been paying for a premium meditation app for fourteen months, and I've used it exactly twice. Luna: Oh, I can top that. I've got an Adobe Creative Cloud subscription that I kept for a full year after I finished my last design project. I think I opened Photoshop once. Lucas: Right, and the question is — why did we keep paying? It's not like we forgot. I got the email every month. But each time I thought about cancelling, something stopped me. That something is the sunk cost fallacy, and it's costing consumers a lot more than we realise. Luna: The sunk cost fallacy — we've touched on it before, but mostly in one-off purchases. Subscriptions are a different beast, aren't they? Lucas: Completely different. With a one-off purchase, the money's gone. With a subscription, you're deciding every month whether to send more money. But the past payments — the ones you already made — those create a psychological anchor. You tell yourself, 'If I cancel now, I've wasted all that money.' So you keep paying, digging the hole deeper. Luna: There's a great study from the University of Chicago published last year — 2025 — that looked at exactly this. They tracked bank account data from 2,500 consumers and found the average person wastes about $237 a year on subscriptions they don't use. Lucas: Two hundred thirty-seven dollars. That's not nothing. And the study also found that people with annual subscriptions were less likely to cancel than people with monthly ones — even though the annual ones cost more upfront. Because that big lump sum feels like a bigger sunk cost. Luna: Right, so you're not just paying for the service — you're paying to avoid the psychological pain of admitting you made a bad decision. Lucas: Exactly. And companies know this. Gym memberships are the classic example. The industry model relies on a certain percentage of members never showing up. Planet Fitness, for instance, reported in their 2025 annual filing that about 30% of their members visit fewer than three times a month. But they keep paying. Luna: I've heard that the average gym member pays about $60 a month but only goes four times. That's $15 per visit. Meanwhile, a pay per visit option would be maybe $10. But they don't offer that, because they need the sunk-cost hook. Lucas: And the hook is psychological, not rational. There's a concept in behavioral economics called 'mental accounting' — we put subscription payments into a different mental bucket than other spending. It's a fixed cost, so we treat it like rent. But rent you can't avoid; a subscription you can. The problem is we don't reframe it each month. Luna: So what breaks the spell? There was that app that launched earlier this year — SubSaver. It analyses your bank transactions, identifies subscriptions you haven't used in 90 days, and offers to cancel them with one click. Lucas: Right, and the early data from SubSaver shows that people who use the app cancel an average of 3.2 subscriptions in the first month. The interesting part is that after cancelling, most users report feeling relieved, not regretful. The anticipated pain of cancelling was worse than the actual pain. Luna: So the forecast was wrong. That's actually a classic bias — 'impact bias,' where we overestimate how bad a negative event will feel. Lucas: Precisely. And that ties into something else the Chicago study found: people who used a 'cooling-off' rule — waiting 24 hours before cancelling — were much more likely to follow through. Because the impulse to cancel is often drowned out by the rationalisation that kicks in immediately. Luna: Speaking of rationalisation, let's talk about the 'use it or lose it' framing. Some subscription services send you weekly usage reports. 'You haven't logged in this week.' What does that do? Lucas: It triggers guilt, but not enough to cancel. It actually reinforces the sunk cost — you think, 'I should use it more to make it worth it.' So you might open the app once, but then you don't cancel because now you've used it recently. It's a cycle. Luna: And if today was actually useful to you — if you're thinking about that subscription you never use — the way we keep this show ad-free is listener support. You can help at buy me a coffee dot com slash fexingo. It's a small way to keep these conversations going. Lucas: Yeah, we don't run ads, so it's really just listeners who find value in the show and want to keep it that way. We're grateful for every bit of support. Now, back to the subscription trap — there's another layer I want to get into. Luna: What's that? Lucas: The bundling effect. Companies like Amazon Prime or Apple One bundle multiple services together. You might not use the music streaming, but you use the video, so you keep the whole bundle. The sunk cost is spread across services, making it harder to isolate the waste. Luna: And there's a status quo bias too — once you're subscribed, inertia keeps you there. You'd have to actively decide to leave. Lucas: Right. So what's the fix? For me, I've started a 'subscription audit' every six months. I list every recurring payment, ask myself if I've used it in the last month, and cancel anything that's been dormant for 60 days. Luna: That's a good habit. And I've switched several annual subscriptions to monthly — even if it costs a bit more per month — because it keeps the decision fresh in my mind. The monthly charge is a prompt to reassess. Lucas: That's counterintuitive but smart. You're paying a slight premium to avoid the sunk-cost trap. And the data suggests it works — the Chicago study found that monthly subscribers were 40% more likely to cancel an unused service within a year than annual subscribers. Luna: Forty percent. That's a huge difference. So the annual plan isn't really a discount if you end up paying for something you don't use. Lucas: Exactly. And that brings us full circle — the best way to beat the sunk cost fallacy is to reframe your thinking. Instead of asking, 'Have I already paid for this?' ask, 'Is this the best use of my money going forward?' Luna: That's the economist's perspective — marginal cost, not average cost. But our brains aren't wired that way. Lucas: No, they're not. But once you know the wiring, you can start to work around it. And maybe save yourself a couple hundred bucks a year. Luna: I'll drink to that. Next time, let's talk about why we keep subscribing to newsletters we never read. Lucas: That's a whole other episode. For now, maybe just check your bank statements.