Tag Archives: utility

Why I Don’t Want to Redeem for Business Class

In a previous post, I talked about why travel is a good use of money, which is largely because people tend to underinvest in experiences and overinvest in material goods even though experiential purchases tend to make people happier than material purchases. Taking this another step, I’ve realized that it doesn’t really make sense for me to redeem for business class; I should instead redeem for either coach class or first class.

In order to maximize my happiness, I should maximize my experiences. This can be accomplished either through taking more trips or by making the trips that I do take as memorable as possible. Since business class awards usually exist in the odd space where they’re considerably more expensive than economy class awards but not that much cheaper than first class awards (e.g. a one-way United award from the US to South Asia is 32.5k in coach, 60k in business, and 70k in first), it doesn’t seem to make much sense to redeem for business class awards. I can take nearly twice as many trips if I avoided business class altogether, and thus maximize experiences through maximizing trips, or I can spend a little bit more in miles to fly in first class, which I believe is a significantly more memorable and special experience for the marginal miles cost.

Don’t get me wrong, business class can be great, but it’s primarily about comfort while flying and not pampering and creating superlative flight experiences. I’ve had good experiences flying in business class, but none of those can compare to things like taking a shower on an airplane. And personally, the biggest factor in determining how much sleep I get on a flight is not seat comfort but whether or not the flight time overlaps with my current sleep schedule, so a fully-flat seat isn’t a guarantee of any sleep (e.g. I slept for less than 2 hours on a 12-hour flight in a fully-flat business seat because the flight left at 11am and landed at 11pm my time).

Ultimately, whether or not you should redeem for coach or business or first or even magazine subscriptions depends on your utility function. What do you derive the most happiness from? No one else can determine that for you, but I hope that explaining my own thought processes might help illuminate your own preferences.

The Importance of Understanding Your Utility Function

When I write about efficiency, I often use the term “utility“, which can be thought of as a representation of your preferences or what makes you happier. And a large part of using miles and points wisely or conducting your life efficiently requires that you understand your utility function, which means that you understand what you truly prefer. This can be a lot harder than it actually sounds.

I’ve ranted before about travel bloggers who equate the cash price of an airline ticket with its value, and that’s largely because using the cash price of an airline ticket as a proxy for its value doesn’t accurately capture your preferences. Most people who use miles would derive more utility from having the cash price of a first class ticket in their bank account than having the miles price of a first class ticket in their mileage account, so it’s wrong to say that those miles were worth x cents a piece.

Unfortunately, since it’s often rather hard to know what your preferences are, people default to using other proxies to say what’s more valuable, like the cash price of things or what other people do or say. When this happens, people can be prone to making decisions that don’t actually maximize their utility because they use external proxies for preferences rather than their own internal metrics. For example, someone can be blinded by the high cash price of a first class ticket and use his miles to book a single trip in first class while in reality, he would have been better served booking two coach tickets and visiting two different places on separate occasions. It’s important to ask yourself in these situations: given the constraints of mileage balances and time to travel and cash on hand, would you prefer to travel in first class on one trip or use your miles to travel in coach on two trips?

A real-life example: I have a coworker who takes an Ambien on any long-haul flight to knock himself out. While the cash price of a first class ticket is prohibitive and the mileage price is not, paying for a premium cabin doesn’t matter for him since he’s not conscious to enjoy it. In this case, he has no real preference for first class over coach, so it doesn’t make sense for him to redeem for first class. He understands his utility function and acts accordingly by redeeming for coach, even if he has enough miles to redeem for the nicer experience.

I’ll write some more posts in the future about common pitfalls in understanding your utility function, but for now, I just suggest that you take some time to think about what really makes you happy. This is a good exercise in all aspects of life, but understanding what you truly value can help you use your miles and points much more efficiently in the future.

How to Win the Lottery

…or rather, why playing the lottery might make sense, depending on your utility function.

I once had a math teacher who proudly proclaimed that she played the lottery every week. She justified this by saying that her ticket had just as much chance to win as any other ticket, and someone often wins, so why couldn’t it be her?

Ignoring the logic here, I do believe that it can be worthwhile to play the lottery, provided that you have a clear understanding of why you play. Here lies a recurring theme: the key to being efficient here is understanding your utility function.

If you’re playing to get rich, you need to be incredibly risk-seeking for this to make sense.

But if you play for entertainment, then it should be treated like any other form of entertainment. Some people like to go to movies, some people like to knit, some people like to play the lottery–all are perfectly reasonable forms of entertainment, and it’s up to you to decide how you want to spend your discretionary income. To each his own.

For myself, I spend far more time and money on miles and points than most would think is rational, but it’s one of my main hobbies, so I think it’s worth it. What sort of things do you do that seem irrational to others but make sense for you?