The test, stated once#
Before any significant purchase, ask: does this person’s outcome depend on mine?
If they get paid on the transaction and nothing after it, their incentive stops at your signature. That’s not an accusation of fraud — it’s a description of how the arrangement works, and it predicts the quality of what follows better than any sales conversation will.
Run the seven through it.
1. Cheap goods#
“Buy cheap, buy twice.” The version that costs real money: a cheap lock on a company vehicle, a thief who got through it in seconds, and the dismantled lock left on the pavement like a note.
The manufacturer got paid. The failure was yours to absorb.
The correct metric isn’t lowest price, it’s return on the money spent. Sometimes that means buying cheap deliberately. It never means buying cheap by default.
2. Get-rich-quick courses#
The pattern is consistent: promises, bonus items for buying today, engineered scarcity, manufactured panic. Phone in and the “exclusive bonus tapes” turn out to be generic material available in a £10 book. Try for a refund and you’re routed toward the next product in the funnel.
The modern version is a Discord signal group where the tipster earns a subscription fee whether your trades win or lose. Identical structure, better graphics.
The tell is the urgency. If they can do the deal today, they can do it next week. Anyone who needs your decision now is telling you the decision doesn’t survive a week of thinking — and everyone is vulnerable to this under the right circumstances, including professional fraud investigators.
3. Designer clothes on store credit#
Walk into a shop with no visible price tags, get fitted for something beyond what you can pay in cash, and sign the store card offered at the till. A year of payments later, the principal hasn’t moved. You paid interest.
Store cards are built for exactly that outcome — recurring revenue from customers who never checked the rate. And rates are punishing: the Federal Reserve puts the average credit card APR at around 21%, and about 22.15% on cards actually carrying a balance, with store cards routinely above that.
The shop earned on the garment and the lender earns every month you carry it. Neither has any stake in whether you can afford it.
4. Stock tips and signals#
The sequence is always the same. A couple of tips from an acquaintance pay off. Confidence builds. The next one — a small company nobody’s heard of — takes most of the position within weeks.
During a bubble, random selections look like insight. Even a monkey is right sometimes, and a rising market manufactures geniuses at scale.
The structural point: someone passing you a signal is almost always paid a commission regardless of what happens next. You carry all the risk; they carry none. That asymmetry is the entire business model, and recognising it is what pushes people toward index funds in the end.
5. Sports betting#
A friend “who never loses” walks you through horse racing. $500 on the first, it comes second. Try again, $1,000, second again. Miss two races that win. Put $4,000 down to recover it. Third place. Total: $5,500.
The mechanism is chasing, and it’s specifically designed for. The house earns on volume and the volume comes from recovery attempts.
A casual bet with a fixed budget is fine. The rule is that when it stops being fun it’s finished — and app-based betting now hooks people far earlier and far faster than a trip to a bookmaker ever did.
6. Unnecessary medical costs#
When you’re in pain, price stops mattering. That’s a well-understood commercial position, and some practices are structured around it — a year of spinal treatments committed to while vulnerable, with an escalating ladder of services waiting behind it.
The counter is timing. Research a practitioner before you need one, and get a second opinion on any ongoing treatment commitment. Both are almost impossible to do while you’re desperate, which is exactly why they have to happen earlier.
7. Over-promised services#
A web designer insists Adobe Flash is essential for a serious business site — knowing it isn’t, but it’s what he can build. £10,000 later there’s a beautiful site that sells nothing, can’t be found on Google, and a designer who’s taken a job in Dubai.
Then the second trap: having spent that much, you keep spending to rescue it. Arkes and Blumer’s 1985 sunk cost study isolated this cleanly — theatre-goers who paid full price for randomly-priced season tickets attended significantly more plays than those given a discount. No quality difference existed. They went because they’d paid.
The designer was paid on delivery. The sunk cost was yours.
The seven-day rule#
One mechanism handles most of this: wait seven days before any significant purchase or service commitment.
It works because every failure above required speed. Scarcity, panic, pain, a friend’s confidence, a fitting room — all of them need a decision made before research happens. Seven days removes the urgency the seller depends on and creates room to check the one thing that matters: whether they earn if you lose.
Summary — and what to do about it#
Check the incentive, then slow down. Those two habits cover almost all of it.
- Ask whether their payment depends on your outcome. Commission, subscription, one-off fee — the structure tells you what happens after the sale.
- Wait seven days on anything significant. Urgency is the seller’s tool, and it doesn’t survive a week.
- Treat engineered scarcity as disqualifying. A genuine deal available today is available next week.
- Never sign credit at the point of sale. Research the card before, not at the till.
- Set the budget before you start, on anything with a chase built in. When it stops being fun, it’s over.
- Research professionals before you need them. You cannot do diligence while in pain.
- Judge a bad purchase from today’s position, not from what you already spent. The sunk cost is gone whichever way you decide.
A mistake only becomes a mistake if you make it twice. Patience, research, and the willingness to walk away outperform any negotiation skill.
Sources & further reading#
- Arkes & Blumer, “The Psychology of Sunk Cost” (1985), Organizational Behavior and Human Decision Processes — the randomised season-ticket experiment.
- Leadership IQ on the sunk cost fallacy — how the effect operates on continuing commitments.
- LendingTree, average credit card interest rate in America — Federal Reserve APR figures behind the store-credit example.
