Doubt, skepticism, and risk management

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Late last week there was a widely-publicized deal allowing you to earn 150 Avios per dollar spent at Match.com (with follow-up here). I had an exchange on Twitter with Ralph at PointsCentric that got me thinking about an issue that comes up fairly regularly in any travel hacking practice: the intersection of doubt, skepticism, and risk aversion.

I doubt nothing

Every travel hacker knows the feeling early on when they say to themself, "there is no possible way this will work," only to discover that it does. Doubt gets pounded out of you fast when you're regularly being paid by banks and merchants to shuffle money in, around and through them.

That's why I doubt nothing, and am willing to evaluate any deal at face value: what's the out-of-pocket cost, how much will I earn in rewards, what's the potential upside of the deal compared to other opportunities?

I'm skeptical of everything

In this case, the best case scenario was purchasing roughly 82,000 British Airways Avios for roughly $550, or 0.67 cents each, a 33% discount compared to transferring Ultimate Rewards points (worth one cent each) to British Airways.

Next, you can start considering the risks:

  • The purchase won't track properly;
  • The purchase won't track at all;
  • The deal will be retroactively changed or revoked;
  • Your account will be closed for abuse.

It turns out that what appears to have happened so far is that points were only awarded for "base" subscription amounts, not any additional features added to the subscription, meaning people who "maxed out" the deal earned 30,500 Avios for $550, paying roughly 1.8 cents per Avios.

Let me be clear: I did not predict this in any way, and am not taking credit for being prescient. I stated clearly in the Twitter exchange I linked to that I expected they would honor the deal (as they partially did). What I did say was that "you can buy Avios for one cent each year-round. The extent of the discount is the extent of your confidence." While I thought they would honor the deal, my level of confidence was extremely low, far too low to commit $550 to finding out whether my prediction was right or not.

It does sound like people are being refunded their Match.com subscription fees upon request, so those folks who jumped on the deal will, fortunately, be made whole.

Risk management is the intersection of belief and skepticism

There are two rules that are as true in travel hacking as they are in virtually any other field of human endeavor:

  • The majority of gains accrue to those willing to take the most risk, and;
  • The majority of losses accrue to those willing to take the most risk.

While I'm willing to take unlimited risk in my investment portfolio, I'm willing to take virtually no risk in my travel hacking portfolio. For me, travel hacking is about easy, consistent wins: I can calculate my profit on manufactured spend down to the penny, and I can fully comprehend the (not inconsiderable) risks.

I wrote back in January about a relatively speculative play I made, counting on an increased portal payout that never arrived. For that play I managed my risk in several ways:

  • I made the purchase on a card the statement closing date of which had just passed, giving me the benefit of a full statement cycle and grace period to determine if the purchase would track and post properly;
  • I made the purchase from a merchant with a generous, extended return period, ensuring that if the purchase failed to track properly (as it ultimately didn't) I wouldn't have to resell the merchandise at a loss.

As I explained in a recent subscribers-only Newsletter, I ended up making a small profit on the deal anyway, but I was only willing to pursue the deal in the first place due to the risk-management I had available.

Conclusion

When these time-limited deals come along, the fear of missing out that is the object of much popular fascination swings into action.

My basic view is that people should have a perfectly rational fear of missing out on the experiences they want to have, while trying to assuage that fear with respect to a particular deal or particular opportunity is far more likely to lead to expensive (or at least time-consuming) errors.

It's perfectly reasonable to relentlessly chase every deal that helps you achieve your goals, while only pursuing the fashionable deal of the moment after the most careful consideration.