Gift cards have been an interesting subject matter to me for some time. That sounds silly, but as often as we encounter them in gift-giving scenarios (check the publish date here...), I often ponder what gift cards might signal about human psychology and economics.

It's not uncommon for some set of people - say, a nuclear family unit - to exchange gifts during the holiday season. We know enough about someone to know the general discipline areas they might like to have more from, but not quite enough to know exactly what. Before gift cards, we are left with a conundrum between a few options:
- Take the risk of buying them something they won't necessarily like that much
- Don't buy them anything and instead try to show them you care in some other manner
- Let them decide what they want, and purchase that for them
- Give them money

Each of these has interesting psychological side effects, let's look at the primary reaction for each one:

*Take the risk of buying them something they won't necessarily like that much*: if it fails, they will feel too bad to tell you they don't like it. "It's the thought that counts" works overtime here, because the negative experience of having to return the item while looking over your shoulder is something neither side wants, but something that very likely will happen.

*Don't buy them anything, and instead show affection another way*: Sure, this might work conceptually, but we know that people feel psychological pain from not reciprocating, so this only really can work if both sides agree not to participate in giving a gift. Additionally, there might be other pains from not participating in tradition / culture.

*Let them decide what they want, and purchase it for them*: Not a bad idea! Except now there's no "thought that counts" involved - you've just become a facilitator. Additionally, there's no surprise involved either. Surprise is highly valued, as broadly evidenced by gift wrapping.

*Give them money:* Ok, maybe this could work. But it's impersonal. And, if we all did it, wouldn't it feel awkward me handing you a $20 bill, and you handing me a $30 bill? This feels transactional... and when the units are exactly the same, and exchanged essentially at the same time, there's a strong urge to settle the tab - you give me 30, I gave you 20... just give me a ten and we're good to go. But then, what did I give you exactly? The opportunity to give me less?

So now there's a strange phenomenon at work here... In my opinion, this is essentially the best example of *mental accounting*. Richard Thaler studied this; the basic idea is that we create boundaries on resources that otherwise would be fungible. For example, we hold a "savings fund" with no *real* boundary, and no explicit financial benefit or restriction. We set that money aside to do something specific with it.

Enter gift cards.

When I give you a $30 gift card, and you give me a $20 gift card, in terms of economic outcomes we've created an arbitrary boundary such that these two cards are no longer *fungible.*

Now here's where it gets really interesting to me: by reducing the fungibility, we've also reduced the economic utility of the underlying cash-value of the thing. Our money is tied up in an asset that *directly* represents money, but only usable in a specific way. From an economist's standpoint, this is a nightmare! In effect, you've created the ability to buy currency that only works at one vendor.

And it gets even worse from an economist's viewpoint; these cards not only create a lock-in to a specific vendor, but many also degrade over time. The value of the card goes down if its not used within a certain window of time.

In terms of utility, you have now given someone something worse than cash in every economically measurable way. Traditional economics would teach us this doesn't make sense - if the card is equivalent in value to cash or worse, then why not prefer cash? It's more universally usable in more places.

**Gift cards solve the problem of proving thoughtfulness, simultaneously resolving the painful effect of highlighting an inequality through fungibility that cash produces.**

An additional possible effect I can think of: licensing. When someone gives you cash, the fungibility of that cash might make you feel guilty for using it for anything not strictly prudent, i.e. paying your credit card off. When you get a gift card, the impossibility of using the card for anything other than the indulgence it was intended for could provide a sense of moral license to the receiver.

The Strangeness of Gift Card Economics

A theoretical relationship exists between a company’s size and how much they care about their customers’ health.

At a very small size, there are few enough customers that if there are detrimental health effects of your product, your business may quickly tank the little foothold it has.

At a a medium to large size, health of your customers becomes a variable to control, in terms of both liability and product deterrence.

(There exists an actuarial table somewhere showing just how unhealthy a given hamburger can be without cutting into profits, and the standard deviations therein.)

Only when a company becomes a monopoly do they again care about the health of their customers, and this time it’s because they ostensibly want to maximize their lifetime customer value. Assuming they have optimized the rest, they are interested in keeping customers alive as long as possible.

By the same token, these same monopolies (in an economic vacuum, of course) would oppose policies that might reduce the global population, as their market is primarily defined by the boundaries of human existence. Similarly, they would likely support legislation pushing for cash to be put in the hands of younger and older people, so that the time period the customers are able to spend expands on either end.

(It just so happens that the majority of businesses you consume from unfortunately fit in the medium-to-large size.)

The Health Conscious Monopoly


It is impossible and perhaps not useful to avoid selection bias.

Selection bias is everything


Getting the first step right seems to be the most important, yet iteration and adjustment can make every step carry similar value and flex. However, when retrospectively evaluating, it’s difficult to re-evaluate a narrative. Narratives are cohesive, while life and development is iterative and unpredictable. Much of the organizational strife between product and engineering is that narratives tend to sell better than big balls of uncertainty, and yet the engineers are responsible for taking the narrative and forging through the uncertainty to carve out the narrative.

Narrative vs Iteration


Monday night football - in order to be at the game, you’re one of two people: either you are local and this is what you do on Mondays, or you traveled to be there, meaning you have both the disposable income to travel and put it into a ticket, AND you have a job where you don’t have to work on a Monday. The result? A bunch of locals and white collar workers in face paint screaming together, and the blue collar class watching them from home or the break room at work. I wonder if the beer costs more in the stadium on a Monday night, and if the commercials cost less to buy than on a Sunday.

Monday Night Football




A non-zero amount of back pressure is applied to certain consumer market goods because the otherwise would-be buyers because of some fear of that thing being found once they have died without having had a chance to dispose of the thing. Which also suggests there is some market for people who would “clean up” on condition of your death or incapacitation. Not like estate planning - more like embarrassment insurance.---
title: Embarrassment Insurance

Jonathan Cutrell

Notes

The Strangeness of Gift Card Economics

The Health Conscious Monopoly

Selection bias is everything

Narrative vs Iteration

Monday Night Football

Embarrassment Insurance