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Credit Card Airline Miles

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Oct. 28th, 2011 | 12:36 pm

The credit card / airline miles complex is interesting because it offers a rare opportunity to examine consumer purchasing behaviour.

Miles make sense in all kinds of situations: for people who fly a lot, they're a loyalty program, designed to bias you toward your favourite brand.

But when credit cards offer you mileage points in return for spending real dollars, behaviour can get wacky.

In particular, people start buying things they wouldn't otherwise have bought, just so they can get the miles.

Of course, sometimes it makes sense to buy miles directly, with cash. That establishes an exchange rate: the street value of an airmile in dollars, and of a dollar in airmiles.

The Dollar Auction paradox shows that under the right conditions people will be willing to bid beyond an item's street price just to win an auction.

I wonder what experiments could be designed to explore if credit card miles are related to the dollar auction.

In a sense the credit card airmiles people have already run all those experiments. they know exactly what they're doing.

It's a classic game mechanic.

Imagine someone gave you S$10,000, and then offered you a choice: an additional S$100, or AU$50?

To be clear, S$100 is worth more than AU$50.

But I suspect a lot of humans would go for the AU$50.

And i think it's based on the fact that humans are omnivorous.

After you've eaten three oranges, what would you prefer: a fourth orange, or a chicken thigh?

A koala wouldn't make that mistake. A koala converts everything to eucalyptus leaves.

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