There's a Name for Why We Love Reward Points

It's called medium maximization.
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The draw of loyalty programs is based on faulty logic: We see how many points we need to reach a reward, not how much money we'll have to spend in order to get there.

The draw of loyalty programs is based on faulty logic: We see how many points we need to reach a reward, not how much money we'll have to spend in order to get there.

For frequent travelers, the ability to rack up miles and exchange them for a free flight may be all the motivation they need to commit to a single airline. For pizza eaters or beauty product buyers, it's no different: The dangling carrot associated with a certain number of points—a free pie, a tube of mascara—is a compelling argument for brand loyalty. However, this isn't necessarily because the company is offering a good deal or promising a final return worthy of the time, effort, or money spent acquiring it.

Instead, loyalty programs rely on the tendency for consumers to fall into the trap known as "medium maximization." Defined by Christopher K. Hsee, Fang Yu, Jiao Zhang, and Yan Zhang in 2013, medium maximization is the propensity for people to perceive a valueless token as providing an "advantage to an otherwise not so advantageous option, an illusion of certainty to an otherwise uncertain option, or an illusion of linearity to an otherwise concave effort-outcome return relationship." They argue that, when comparing transactions that include a medium—whether that be airline miles, drugstore rewards points, arcade tickets—with those that don't, people "often fail to fully skip the medium and they maximize not just the effort → outcome return, but also the effort → medium return."

Take Delta SkyMiles. According to the website, lower-tier SkyMiles Members earn five miles per every $1 spent on a ticket—buy a more expensive ticket, redeem more miles; accrue at least 10,000 miles and exchange them for a free trip of the same or lesser value in miles. In this scenario, the "medium" is miles and the "outcome" is the free trip. Assuming the traveler doesn't redeem rewards miles through their credit card or any of Delta's partners, they would have to spend around $2,000 (not including additional fees and variations in the exchange rate) on tickets before being able to cash in for the round-trip flight with the lowest mileage value—roughly $120 (again, not including fees). Ultimately, the trouble spent remaining faithful to Delta translates to less than 6 percent cash back.

However, by assigning each flight a corresponding SkyMiles value, Delta can manipulate members into believing that a flight resulting in more miles (that is, a more expensive flight) is worth choosing over a flight resulting in fewer miles (a cheaper flight) because, according to the medium maximization principle, people are unlikely to consider all aspects of the equation and will jump on the flight that'll bring them closer to the desired outcome—a "free" trip that, in reality, is not really free.

According to Hsee, apps allowing consumers to track their points only strengthen our faulty logic: We see how many points we need to reach a reward, not how much money we'll have to spend in order to get there. Just like on Whose Line Is It Anyway, when it comes to loyalty rewards, "Everything's made up and the points don't matter."

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