I came across $100 Target gift card for sale on eBay for $90 (thanks to Zach). It is a deal for selling you $100 Target gift card for $90. Let us assume here everything is legitimate and not add other external factors.
Can you think of why anyone would take less than face value of the gift card?
Looking at the seller and number of deals sold, this is a case a wholesaler who likely struck a deal with Target to get $100 gift cards for less than $90 and trying to make a profit. For Target such a deal would make sense because of assured $100 sale (it is as if they are giving, say, 20% discount) and there is always breakage (people not using full value of gift cards).
Seems like rational automatons making spreadsheet driven decisions.
Now how about refusing to trade even for fair value?
A while back I wrote about a case of Target gift card. It was an offer for you to trade a $20 Target gift card for cash that is lot more fungible than 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
There exists a scenario where the gift card guarantees more hedonistic pleasure than fungibility of cash that creates conflicts. Applying Prospect Theory, a gift card represents money that is already spent. So there is less or no additional pain from buying things with it. When you trade it in as cash it becomes “unspent” and creates more pain (Prospect Theory) when you buy things with it.
Furthermore, if it is a gift card you know you have to spend and there is no mental conflict. When it is cash, the very fungibility creates choices – could you be paying rent or saving that money instead of spending it?
That is where some will refuse to trade in their gift card for cash.
What will you do?