I agree with your first paragraph. It's a pet peeve of mine. The value you get out of a mile is only the cost you would have spent in the first place. If coach is $1000 and business is $5000, I might personally value business as $2000 for a particular trip. Therefore, the price I saved is $2000, not $5000. It's why the 100% US Airways buy miles promos make sense -- some people don't mind paying $1800 for a business class ticket to Asia (even if they forgo earned miles).
Originally Posted by
yerffej201
And then there's milevalue and lucky who more sensibly value the miles at a fixed amount, like 0.8 cents for Hilton, which is slightly better, but that doesn't make sense either because your cpm redemption value is dependent on the actual redemption. So what they're saying is like "I value 100 USD at 80 USD, but since I got 100 USD worth of stuff, I made a good purchase."
That simply doesn't make sense to me...
In your "I value 100 USD at 80 USD example," you're confusing two ways to think of money, which are
(1) An instrument that holds a set amount of value
(2) A liquid currency that can be used to purchase goods and services.
Instead, think of it as "I value 100 widgets the same as $100, but if I participate in this loyalty program, I can purchase points that are good for 100 widgets for only $80."
It's arbitrage, which is what this game is all about. Get points at a low cost, redeem that at a higher cost.
My "value" of a point is the price at which I'm indifferent between it and cash. For an easy example, let's look at Ultimate Rewards, which can be redeemed for cash at 1cpp or redeemed for travel at 1.25cpp. Since I like to travel, I'm indifferent to them at 1.25cpp, because I
know that I will be able to get
at least that much value out of them. If you came up to me and said, "I'll sell you Ultimate Rewards for 1.2 cents each," I'd take you up on that (if it weren't against the T&C).
However, if I needed to book a flight for my cousin (who flies once a year and doesn't care about earning miles, so earned miles leave the equation), and I redeem 25,000 Ultimate Rewards via United miles for an otherwise $550 ticket, then I can say "I value 25K UR at $312.50 but got $550 out of them, so that's a good redemption."