What are you willing to accept for your $20 @Target gift card?

Say you are in possession of a $20 Target gift card. It is likely someone gave this as a gift to you as it is farfetched that one would buy oneself a gift card.

I offer to take that gift card from your hand for cold hard cash – cash that is lot more flexible than the Target gift card which has the limitation that it can only be spent at Target.

As a Homo Economicus you should be willing to accept any reasonable offer that is just about less than $20

As you can see Eric above was willing to accept even $19. There is likely a distribution of offers. But if  offered  exactly $20 in cash in exchange for the gift card of same value anyone should willingly accept the offer. In fact the added benefit of complete flexibility is the consumer surplus that makes this a high value transaction.

However there exist a set of people who would firmly hold on to the gift card despite an even offer.

I polled a non-scientific sample of 15  third graders on this even transfer –

You got a $20 Target gift card for your birthday. Would you trade that with me for $20 bill?

The answer from all was a resounding no.

The reason? If I have the gift card then I know I have to spend it and I can only spend it. No doubts and no pain. But if I have that as $20 bill then another option opens up. I could save some of it another day. And I don’t want that painful choice.

Cash adds more choices – the money can be spent on other utilitarian needs or even saved. Keeping it as gift card seem to provide the justification that they have to spend it all with no other option. So the easy way to avoid the hedonistic conflict is to reject the offer to exchange gift card (hedonistic) for $20 bill (utilitarian). (See here)

 

 

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