Why would you cancel a non-refundable hotel reservation?

The reason is very simple: so that you can claim for the non-refundable costs on your travel insurance (you do have travel insurance, right?). The insurance company will want to see an official cancellation to be sure that you definitely did not stay at the hotel.

Aside for multiple reasons already mentioned, your cancellation will make the room available for someone else to book. You might consider this of no relevance to you, but one day you might be the person looking desperately for a room.

All answers give a very focused reply to a question. Let me use as a reference, the work of a recent Nobel laureate.

Recently behavioural economists have been focussing on lack of rationality in human decision making. Your question is very reasonable from a What’s in it for me perspective.
However not all humans are like that. Many have demonstrated that they would rather provide convenience to someone else even though they have already paid for it.

Getting a refund isn’t necessarily the only option when cancelling. Some places will let you cancel (directly through them, not through a third-party website) and receive an alternate form of compensation such as a voucher to use towards a future visit, or the equivalent amount of loyalty program reward points. This is more common with air tickets than with hotels but I’ve found that if you call the hotel and are polite to their booking manager, they usually try to do what they can to keep their customers happy.

Also note that there are legitimate cases where you can cancel a non-refundable reservation despite what a third-party website tells you (they tend to err on the side of protecting their commission). Read the fine print carefully. Example: if you booked the hotel and air/train tickets at the same time, you are often able to get your hotel refunded if the flight/train is cancelled, rescheduled to a different day, or otherwise significantly changed in a way outside your control. Local law may also give you additional rights that supersede anything the website tries to tell you. Hotel staff will know more about local law than you will, so the best course of action is usually to call them, be honest and polite, and ask them what your options are.

You may want to cancel if your credit card offers insurance and needs you to cancel to make the refund.

Also, you may have to pay taxes to the city (“tourist tax” or “stay tax”) when staying at the hotel. These are only paid when you actually spend the night, so you can avoid paying them by cancelling your room.

Apart from etiquette, an actual use case:

I have separate insurance for certain events (death of a family member or travel partner, illness, etc) so I don’t get refundable rooms as they are more expensive.

Sadly, I had to cancel rooms (and flights etc) a number of times. The insurance will ask you to cancel the room/flight/whatever, and then send them the list of all costs left after refunds. If the refunds are 0, then so be it.

I cancel just in case the hotel or booking agency refunds me anyway — it happens.

I have cancelled a non-refundable hotel booking twice.

In one case, I had booked through the hotel website. I cancelled several months in advance (altered flight times meant spending night in a different city than planned). Much to my surprise, I received a 100% refund.

In another case, I had booked through a hotel aggregator website. I cancelled several days in advance (altered travel plans due to French train strikes) and I received no refund.

Recap: I cancel just in case the hotel or booking agency refunds me anyway — it happens.

Etiquette generally demands that if you reserve something you’re not going to make use of, it’s polite to cancel your reservation. Even if you can’t summon any desire to be nice to the hotel’s owners after being subject to their inflexible cancellation policies, think of it as being nice to your fellow travelers, as your cancellation just might help out someone else who is in need of a room.

This is often less true with rooms booked through a third-party booking site like Expedia, but if you call the hotel directly, they can sometimes, entirely at their discretion with no guarantees of success, be accommodating even with non-refundable reservations, especially if you have a good reason (medical emergency, serious travel delays, etc…) and/or are open to flexibility (they may let you shift the dates or apply the cost as a credit toward a future stay).