Last week, Esther and I were trying to figure out the best use of our points for an upcoming trip to Australia, New Zealand, and Fiji. I had initially covered four nights in Sydney with my IHG balance (140,000 points for 4 nights at the Holiday Inn Old Sydney), and we planned on redeeming Orbucks for our stay in New Zealand, so we were left trying to figure out what to do about Fiji.
After some research, Esther settled on the Intercontinental Fiji, and itโs not too hard to see why:
Source: ihg.com/intercontinental
However, we were faced with a complication: having redeemed 120,000 points for Sydney, I was out of IHG points, and Esther had no balance to begin with. So even though 30,000 points/night is a great deal for what would have otherwise been a $500/night hotel, we didnโt really have a way to make the redemption.
Luckily, Esther has gobs of Ultimate Rewards (UR), so she suggested transferring them to IHG so that she would have enough of a balance to make the redemption we wanted. That seemed reasonable to me, too.
Exceptโฆ.Nominally, UR transfer to IHG at a ratio of 1:1. I say nominally because thatโs only what Chase tells you. In actuality, you can get 1.43 IHG points for every UR youโre willing to part with.
Iโm not going to go into the mechanics of the hack (you can see posts hereย and hereย if youย want to learn more), but suffice it to say that at any point in time, you can buy 10,000 IHG points at a cost of $70, which is 0.7 cents per point. How does this help us? Well, if we redeem, say 7,000 of our UR points as cash, we can then go buy 10,000 IHG points. Working out the math, 10,000/7,000 = 1.43, giving us the โtransferโ ratio I promised.
But you knew this. Itโs just a reformulation of a hack that you’ve already seen, with a photo of a nice hotel thrown it. Whatโs the point?
An Ultimate Rewards point is strictly better than a penny.
The point has nothing really to do with IHG. The example above was just a conceit to show how one thing (UR) could be strictly better than another (cash). It is strictly better because all of the advantages of a penny can be had by an Ultimate Reward point, and an Ultimate Reward point has advantages that a penny does not, namely, the ability to get outsized value for nice hotels (Hyatt) or flights (Singapore first class suites).
Can we think of other examples? Here are a few.
- An Apple gift card is strictly better than an iTunes gift card, since you can buy an iTunes gift card with an Apple gift card, but you can also buy an iPad with the Apple gift card but not with an iTunes gift card.
- A Membership Rewards point (MR) is strictly better than a Singapore KrisFlyer mile, since the MR can be converted to a KrisFlyer mile while also being redeemable for 0.5 cents or transferrable to another airline partner.
- The Yankees are strictly better than the Red Sox because, wellโฆ.26 rings.
What are situations in which something is NOT strictly better than an alternative?
- A grocery store gift card is not strictly better than a gas station gift card if that grocery store card canโt be used to buy other gift cards.
- A Starwood (SPG) point is not strictly better than cash because while you can redeem SPG points for hotels or flights at greater than 1 cent per point, those points offer you no value at IHG hotels, whereas cash can buy you the points for a discounted stay at the Intercontinental.
Now that youโve gotten the hang of it, letโs try to articulate what makes one thing ‘strictly better’ than another. The better-ness has to do with opportunity. What things or experiences are we afforded by having one point/mile/widget/currency over another? If the answer is, “all, and then some”, then you’ve found something that’s strictly better.
โStrictly betterโ is a framework for making decisions.
The formal term for the property weโre describing isย totalย order. A set of things are said to have a totalย ordering if you can arrange them in such a way that each successive item is provably โbetter’ than the previous one. Therefore, since a penny is strictly better than an IHG point, and a UR point is strictly better than a penny, the set of IHG points, cash, and UR have a total ordering.
What this means is that when faced with two alternatives, like using a 2% cash back card at a restaurant or your Chase Sapphire Preferredย which earns 2 UR per dollar spent, you should never opt for an alternative that is strictly worse than the other. In other words, you should always use your Chase Sapphire Preferred (at restaurants).
When two things donโt have a strict ordering, the decision-making becomes less cut-and-dry.ย For us, these sorts of decisions take the form of deciding which of two currencies weโd prefer–for example, 5 Club Carlson points per dollar at a grocery store or 6 Hilton points–the answers to which can only be supplied on a person-by-person, case-by-case basis. Clearly, Hilton points have no use at Club Carlson hotels, and Club Carlson points have no use at Hilton properties, so you’re forced into a different question. What’s a Club Carlson point ‘worth’ to you? A Hilton point? Only after aย long inner dialogue can you make this important decision.
To be clear, Iย don’t think you should spend hours, minutes, or even seconds agonizing over each and every decision in your life,ย because for the purposes of most of us, a 1% difference in return is completely inconsequential. But the next time you get offered an option of $100 cash or 20,000 IHG points as I was two weeks ago, at least you’ll know where to start (hint: $100 cash is only strictly better than 14,285 IHG points).
Happy hacking!
[youtube https://www.youtube.com/watch?v=WBPGdE0yFkQ]
Great read, thanks. The parts about decision making reminded me of my econ MBA course a few years back. What would you suggest for further readings about alternatives and opportunity costs? I know you have some recommendations.. people dont write about this stuff unless they’re versed in the subject.
I wish I had one good answer here — it’s mostly a combination of stuff that’s been rattling around from various books, classes, etc. If I had to suggest a few books, they’d probably be: Predictably Irrational, The Tipping Point, and The Black Swan (Nicholas Taleb). Those are a reasonable smattering of psychology and behavioral economics, which provide the core of how I think about things. I’ll let you know if I come up with more!
One more — Farnam Street (a blog)
If you’re going to read Taleb, I recommend “Fooled by Randomness”. Not that Black Swan is bad, but I think FBR is better.
Just wanted to add…I made the situation more difficult because I just HAD to have that hotel ๐ sometimes, there are other factors that come into play, such as feelings. We could’ve stayed at a number of other resorts on points (I have a ton of Hilton points, for example), but I was in love with the IC. ๐
Strictly speaking, as a Sox fan, I will always find a way to make myself feel better about the team. Therefore I feel obliged to point out that, strictly speaking, the Red Sox are better than the Yankees this millenium (3 rings > 2). ๐
“This” millenium is still young. Give it a few years….
Where are you guys staying in in New Zealand?
We actually haven’t decided yet! Any suggestions? ๐
[…] than 1.5 or 1.6 cents per point. In that case, I’d be better of keeping my cash, because the cash would be strictly better than the miles.ย However, when redeeming for business class tickets, I typically get 4 to 5 cents of value per […]