It’s a question that at first glance, at least to me, has a simple answer.
Cash, of course. Cash enables you to do anything you can do with the gift card, plus a whole lot more.
A gift card, on the other hand, restricts your choices to just the gift associated with the card. By gift card, I am referring to one for a specific store, not an AMEX or Amazon gift card, which are in many ways similar to cash, since they can be used for a variety of purchases.
Choosing cash over a gift card is the rational answer, but as Dan Ariely has made a career of pointing out, people do not behave irrationally.
Here is the answer he offered to this question:
Gift cards limit the way we can use money, which means that, from a strictly rational viewpoint, they are inferior to cash. But people prefer gift cards because of an irrational emotion called guilt—or, more accurately, because of our need to alleviate guilt.
When we look around us, we feel guilt over our desire for many different things: fancy chocolates, pens, expensive headsets, electronic gadgets, etc. We want these things, but the guilt caused by our wants is powerful, so it sometimes stops us.
When we get money, we’re likely to feel guilty about spending it on our more self-indulgent desires. But when we get a gift card, the guilt is much reduced and sometimes eliminated.
Interestingly, the particular level of guilt alleviation depends on the type of gift card. For example, if the card is an American Express gift card, it is basically the same thing as money, and it doesn’t ease much guilt. But if the gift card is restricted to Tiffany’s or REI, that money suddenly becomes more valuable. A dollar without guilt is worth more than a regular dollar.
And if you got any gift cards this holiday season, of any type, I suggest using them as if they were meant to be spent only in your favorite store—and enjoy them guilt-free.
I think I’d have to agree with Dan. If someone gave me $2,000 cash, it’s likely I would not go out and buy the latest Apple iPad, even though I really want one. I’d feel guilty about using the money in that manner, feeling selfish about how I spent the money. However, if someone gave me a $2,000 Apple gift card (hint, hint), I’d be at the Apple store the next day buying an iPad. After all, there is nothing else I could do with it.
But I guess the gift card is only the better option if it can be used at a place that you enjoy. If someone had instead given me a $2,000 gift card to a gourmet cheese shop, I’d end up giving the card away. In that situation, I would have strongly preferred $2,000 cash; at least that way I could buy find a way to use that I would enjoy, and would not feel guilty about, like taking my family out to a nice Mexican or Thai restaurant.
So once again, behavioral economics, via Dan Ariely, provides an interesting insight into why people make seemingly irrational decisions and offers a practical solution for a real-world dilemma.
P.S. Just to clear up any possible confusion, I don’t regularly receive $2,000 gifts. Actually, never…
*image from Tylt