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It's difficult to decouple your knowledge of how much you paid for something. Even if you intellectually know the fair market value of something is now 0.1x what you paid for it, it can still feel like you're just losing all that money by accepting that price.

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Yeah. This is called "anchoring" in behavioral economics research. People can't let go of the price they last paid for the good as the "correct" price, and so are reluctant to drop to the true market-clearing price.

This is also why cereal makers rely on shrinkflation to raise prices, and why home prices are sticky downwards, and why companies resort to layoffs rather than wage cuts. In an individual consumer's mind, prices should stay the same.

I think this is also a baby step away from one basis for hoarding behavior. The hoarder cannot see the many cases where the loss of value has already happened whether you retain the item or discard it. They think the full loss is realized the moment it is discarded.

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