Medium Maximization

Abstract

A medium - for example, points or money - is a token people receive as the immediate reward of their effort.It has no value in and of itself, but it can be traded for a desired outcome. Experiments demonstrate that, when people are faced with options entailing different outcomes, the presence of a medium can alter what option they choose. This effect occurs because the medium presents an illusion of advantage to an otherwise not so advantageous option, an illusion of certainty to an otherwise uncertain option, or an illusion of linearity to an otherwise concave effort-outcome return relationship. This work has implications for how points influence consumer choice and how money influences human behavior.

Keywords: decision-making, loralty program, utility construction, consumer satisfaction

JEL Classification: D11, D12, D81, D91