Latest / Behavioral Economics with Fexingo: Decision Making, Bias, and How People Really Spend / Why Your Brain Treats a Subscription as a Sunk Cost
Transcript
- Lucas: So, Luna, I've been staring at my credit card statement, and there it is again: forty-nine dollars a month for a gym I haven't set foot in since March. And before you ask, yes, I know it's August. Luna: Ouch. And yet, I bet you're not going to cancel it, are you? Lucas: That's the thing. I keep telling myself I'll go 'next week.' But the real reason I hang on? It's not ambition. It's the sunk cost fallacy doing its slow, expensive work. Luna: Alright, let's unpack that. The sunk cost fallacy usually applies to big projects — the movie you finish because you already paid for the ticket, the car you keep pouring money into because you've invested so much already. Lucas: Right. But subscriptions are a special, sneaky case. Because the cost is recurring, small, and often automatic. And there's this study from the Journal of Consumer Research — just last year, 2025 — that looked at exactly why we keep subscriptions we don't use. Luna: What did they find? Lucas: They found that people are twenty-three percent more likely to cancel a subscription after a price increase than after a period of non-use. So a price hike triggers a reassessment, but just ignoring the service doesn't. The silence of the unused subscription is what lets it persist. Luna: Interesting. So the monthly charge becomes invisible, but a price hike is like a jolt that wakes us up. Lucas: Exactly. And there's a concept called mental depreciation. When you buy a physical product, you mentally depreciate its value over time. But a subscription doesn't depreciate in your mind. The value stays frozen, so you don't feel the loss of not using it. Luna: So it's not really about the sunk cost of past payments — it's more about the perceived value of the future opportunity? Lucas: Partly. The gym membership is a great example. I've already paid hundreds of dollars this year. That money is gone, and it shouldn't influence my decision about next month. But my brain treats the membership as an option I might use, and the future value feels real. Luna: And companies know this. They design subscriptions to exploit that. The free trial, the annual plan, the 'cancel anytime' that's actually a maze. Lucas: Absolutely. The free trial is the classic hook. Once you're in, the default is to keep paying. And the longer you've been subscribed, the more sunk cost you feel, because you think, 'I've been a member for two years, I can't just walk away.' Luna: That's the endowment effect in subscription form. You feel ownership over the membership itself, not just the service. Lucas: Right. And there's another layer: the status quo bias. Once something is set up as a recurring payment, changing it requires effort. Even if the effort is just a phone call, it's easier to do nothing. Luna: So what's the antidote? How do we break the cycle? Lucas: The researchers suggest a simple reframe: think of each subscription as a separate decision, not a grand commitment. Ask yourself, 'If I hadn't signed up already, would I sign up today?' If the answer is no, cancel. Luna: That's the classic zero-based budgeting applied to subscriptions. Lucas: Exactly. And it works because it forces you to confront the current value, not the historical cost. My gym membership fails that test spectacularly. I haven't been in months, and if I were choosing today, I'd say no. Luna: So you're going to cancel? I'll believe it when I see it. Lucas: I've already got the cancellation page open. But here's the thing — I've also got three streaming services, a meal kit, and a meditation app. It adds up to over a hundred dollars a month. And I know I'm not alone. Luna: A recent survey said the average person underestimates their subscription spending by about a hundred and fifty dollars a month. That's real money. Lucas: And that's the kind of thing that makes you think — a couple of dollars a month for a podcast feels like nothing, but enough of those 'nothings' can actually keep a show going. It's the same principle in reverse: small recurring payments add up, but they can also add up to something good. Luna: Absolutely. If you've gotten value from our show, buying us a coffee at buy me a coffee dot com slash fexingo is a way to make sure it stays ad-free. It's like a subscription, but you can cancel any time and it's genuinely appreciated. Lucas: No pressure, of course. But it's the same psychology — small recurring support makes a big difference. Anyway, back to the sunk cost. There's another tactic that works: set a reminder to review your subscriptions every quarter. Put it in your calendar, treat it like a bill. Luna: That's proactive, not reactive. You're not waiting for a price hike to wake you up. Lucas: And you can use the 'one-click cancel' laws that went into effect last year in California — now spreading to other states. The Federal Trade Commission rolled out the 'click to cancel' rule, so companies have to make it as easy to cancel as it is to sign up. Luna: That's a game-changer. The friction was part of the design, and now that's being removed. Lucas: It's a rare case where policy meets behavioral economics. And it shows that our biases aren't just personal failures — they can be engineered, and they can be un-engineered. Luna: So what's your first move? Are you really going to cancel the gym? Lucas: I'm doing it today. But I'm also going to apply the test to everything. If I wouldn't sign up today, it goes. I'll probably save three hundred dollars a month. Luna: That's a nice vacation fund. And maybe a few trips to a real gym, if you ever decide to go back. Lucas: Ha. Maybe. But the point is, the subscription economy runs on our inertia. And once you see it, you can't unsee it. Luna: It's like the ultimate hidden tax on convenience. Lucas: But it's a tax we can choose to stop paying. And the next time a price hike lands in your inbox, don't just shrug it off — treat it as a signal to reevaluate. Luna: Wise words. So, next step: maybe we do an episode on the psychology of cancellation itself? Lucas: That's actually a great idea. The moment you hit cancel, there's a little pang of loss — even if you know it's the right call. That's the endowment effect again. Stay tuned for that.