Monday, May 15, 2006

Netflix and the "sunk-cost fallacy"

Summer has a bad case of Netflixia regarding the "Depressing 3-Week-Old Taiwanese Movie Rental" from Netflix. Summer says this feeling reminds them of the "sunk-cost fallacy," about which I know nothing, so I looked it up on Wikipedia. According to Wikipedia, "sunk costs are costs that have already been incurred and which cannot be recovered to any significant degree." The "sunk-cost fallacy," which is like "throwing good money after bad," is the irrational belief that you are committed to something merely because you've already spent money on it.

We think we can avoid the feeling of waste or loss by holding onto the movie, rather than returning it unwatched. This is irrational, because the money you spend on Netflix each month is a SUNK COST. No matter what you do, you cannot recover it. Whether you watch one movie or a hundred, you've spent the exact same amount of money.

If you do not utilize Netflix enough to equal the money you spent on it, in your mind, instead of trying to squeeze value out of your wasted subscription, don't waste it even more, by not returning your unwatched movies. Instead, cancel your subscription or reduce your plan to a lower level. Make sure the money you spend on Netflix matches your utilization level, instead of trying to make your utilization of Netflix match the money you spend.

Inspired by The Saddest Thing I Own blog.


  1. I'm interested in what it is about Netflix that makes its "sunk cost" so much more visible and aggravating than other services. I don't understand it, but I believe it's real and is part of why "throttling" is such a hot-button issue.

    My brother-in-law pays $75 per month for a satellite package, and ends up mostly catching the last half of movies he has already seen 10 times. Nonetheless he thinks he's getting a good deal, and thinks he doesn't have enough time to get his money's worth out of an $18 NF subscription.

  2. I'm going to answer your comment in my next post.