Recently, I paid $159 for a 1-year bikeshare membership. In San Francisco, most trips I want to take stay within 2 miles one way, so this membership's free 45-minute rides work out well.

When deciding how to get around SF, one might naturally ask:

Since I paid for this bikeshare membership, should I take a free bike ride, or the public transport?

In economic terms, however, we should ask a different way.

On the theoretic level, the $159 I paid for the membership constitutes a “sunk cost.” Unless I file a refund, I won't get that money back. Therefore, it should NOT factor into my current decision.

On the practical level, I should direct my attention toward the price difference between the options, rather than the free-ness of one option. People naturally exhibit loss aversion, so “free” speaks to us beyond rationality. I once took a 60-minute ride (30 minutes one way) for “free” pizza, even though I could have saved most of that time and gotten better pizza for a few bucks.

To avoid the trap of “free” and of sunk cost, we should instead ask:

Should I pay $2.50 more for the convenience of public transport?