Also, there is an important issue in this discussion that relates to the psychology of spending. We aren't rational creatures, so the pleasure that we get from £1 of expenditure varies widely with the circumstances.
To take the negaitve side, I suspect that I'm not alone in feeling ripped off when a restaurant overcharges me by a few £. if I were to find the same sum in an unexpected surcharge when I took delivery of a new car, I would ,irrationally, care much less.
On the other hand, I get very little pleasure from chocolate or biscuits and haven't bought either from my own cash for decades. But when, as happended last week, my mum gives me some homemade flapjacks, her act of generosity actually gives me pleasure from eating something that I would not normally eat.
So the circumstances under which something is experienced can significantly affect the level of utility experienced by an individual.
Applying this to avios is interesting. Rationally, I could swap my avios for Nectar points, buy some loo roll in Sainsbury's, and spend the money saved on my weekly shop on something nice. But that doesn't give me much pleasure. I probably have enought money to buy the nice thing anyway, and I don't really look forward to free loo roll with with any great excitement.
On the other hand, seeing an avios balance gradually increase while I imagine a great trip abroad gives me double pleasure. I get utility from planning and anticipating the trip, and I get further utility when I actually tavel. Some researchers have even suggested that many people get more pleasure from planning a holiday than they do from actually going away.
That's why I switched from a cashback credit card to an avios one: the cashback was never big enough to generate more than a shrug of indifference when I looked at it; in fact, I got to the point where I never knew when or how much cashback would be paid..On the other hand, the thought of a holiday as a reward is enough to keep me interested. With cashback, I know I could have spent the cash on a holiday - but that never felt the same. And, as a result, the value was objectively lower.
Your Psychology May Vary (YPMV), of course.