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Source link: http://archive.mises.org/13679/congresses-gift-to-gift-cards/

Congresses Gift to Gift Cards

August 24, 2010 by

Recent credit card legislation, among many things, proposes to reform the market for gift cards

According to an article at Forbes the new rules include

* Limits on expiration dates The money on your gift card will be good for at least five years from the date the card is purchased. Money added or loaded on to the card must also be good for at least five years.

* Replacement cards. If your gift card expires and there is unspent money, you can request a replacement card at no charge.

* Fees. The law bans dormancy, inactivity and service fees on gift cards unless there has not been any activity for twelve months and the issuer clearly discloses all fees on the packaging. In those cases, consumers can only be charged one fee per month. Last month, Congress passed legislation to extend the effective date for the disclosure requirement until January 31, 2011, for cards issued prior to April 1, 2010.

Yet, as always, what are the unintended consequences?

As reported in The Atlantic  behavioral economists offer clues

In an experiment, Shu and Gneezy first surveyed 80 undergraduates, asking how they would feel about a gift certificate for a slice of cake and a beverage at a local café and how likely they were to use it. Forty-two survey participants were asked to consider a certificate good for three weeks, and 38 were asked about a two-month certificate. More than two-thirds of the group with the longer deadline said they would use such a coupon; only half of the group with the shorter deadline said they would.

Shu and Gneezy then ran the experiment in real life, with a different group of 64 undergraduates. Half the participants got certificates good for three weeks and half for two months. Both groups were far less likely to cash in their cake coupons than predicted. And contrary to predictions, the shorter deadline encouraged more indulgence. Ten out of 32 people redeemed the three-week certificate; only two of 32 used the two-month pass. Those who redeemed their certificates said they’d enjoyed themselves, while those who didn’t said they regretted letting the deadline slip. They gave reasons like “I was too busy and ran out of time” or “I kept thinking I could do it later.” The pressure of a shorter deadline encouraged people to stop procrastinating and enjoy themselves.

Similarly, Shu and Gneezy found in surveys (as we all know from our own experiences) that tourists with limited time are more likely to visit local attractions than are residents, who presumably can go whenever they want. In fact, residents tend to make their tourist-like visits when they have out-of-town guests or when they’re about to move away. With no immediate reason to hit nearby landmarks, locals put off for tomorrow what they might enjoy today.

“What I think is happening,” Shu told me, “is that when people think about the future, they’re very focused on the gains and the positive outcomes. The benefits are really appealing when they’re far off in the future, and people just don’t see the costs at all. Whereas if it’s tomorrow, the benefits are similar but the costs are huge and in their face.” A Saturday at the museum sounds great until you have to leave your errands undone and find a place to park. You wind up sticking to your routine, even though you’d be happier breaking it.


Ryan August 24, 2010 at 7:42 am

The deadlines function as a cap on how far into the future a firm is willing to push its business activity. The government is once again undermining economic calculation in the name of stimulating demand. The unintended consequences of this are many, large, and far-reaching.

andy August 24, 2010 at 8:01 am

Personally, as a businessman, having to comply with complex legislation would put me off using gift cards completely. I don’t have a legal dept. to go over every little thing I do…

jon August 24, 2010 at 8:25 am

“What I think is happening,” Shu told me, “is that when people think about the future, they’re very focused on the gains and the positive outcomes.”

you mean they respond to incentives?

“You wind up sticking to your routine, even though you’d be happier breaking it.”

oh really? someone else knows better than i do what makes me happy?

so basically, “behavioral economists” waste their free-handout tenure money seemingly rediscovering everything mises already knew, because they won’t deign to read and understand him, and then their conclusions explicitly deny his axioms.

Katy August 24, 2010 at 9:32 am

Congresses is the plural of Congress.

Congress’ is the possessive form of Congress.

RTB August 24, 2010 at 9:51 pm

Thank you. The Headline had me scratching my head.

Lemmywinks August 24, 2010 at 10:53 am

OMFG! Not that I have some great stake in the regulation of gift-cards, but every gift card I’ve ever received had a expiration date, which I have carefully concluded (multiple times) IS THE LAST DAY I CAN USE THE CARD! Who hangs on to gift card for five years anyways….

Even in more extreme cases of fine-print, consumer-tricking, activity, the consumer should be responsible for the agreements the sign, but gift-card don’t even try to trick people. Obviously, as a business it makes sense to sell gift-cards, because you are making the money right then, and you might not even lose any merchandise over it, since the customer may never cash the card in……but this risk is entirely obvious to anyone who buys a gift card.

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