In Ben’s initial post on the subject he argued Hilton HHonors points were really valuable because of the great hotels you can access at a strong cents per point ratio (compared to the cost of paying for that hotel room).

His latest missive in the debate, though, is titled “Valuing miles and points is a futile effort.”

Getting a precise value for a given currency is a futile effort, because the value is opaque. You can’t truly compare across currencies when each currency can be used for different things, rather than universally for the same things. And especially because there is also uncertainty. You don’t know which hotels will leave a brand’s portfolio. You don’t know when the points will be devalued, and by how much. When hotel programs adjust which properties are assigned to which redemption categories, or they add a redemption category, or they change the pricing of their categories, there can be a 20% devaluation in a single go.

And that’s why it makes no sense to say that you got x cents per point in value, therefore the points are worth x cents.

Even if you would have paid full price for a hotel room, and you used points instead, the most that tells you is that the points were worth x cents apiece.

It doesn’t tell you they are worth that on an ongoing basis into the future. Or more importantly, that that’s the price at which you are equally happy with points as you are with cash.

I really do think my formulation holds:

[T]he value of a loyalty program point, expressed in dollars (cents), is the amount at which you are indifferent between holding points and holding cash.

Ben says, “points are only worth what you’d otherwise pay for a product, and not the retail cost.”

That’s correct, but just because you’d pay $300 and the product costs you 30,000 points that doesn’t mean each point “is worth a penny.” Because for the point to be worth a penny, you’d be willing to spend any amount of money up to a penny to acquire that point.

See, you would still have the cash because cash isn’t nearly as restrictive (it can be used to pay for far more things), it isn’t as risky (you may not trust Ben Bernanke but the US Federal Reserve has a better track record over the past thirty years than most loyalty programs), there simply isn’t as much risk.

The question is, at what price would you buy points. If you wouldn’t spend 1 cent to acquire a Hilton point, then the Hilton point isn’t worth 1 cent.

I explained that my ‘indifference point’ is half a cent. That’s the point where I know that I can always use points instead of cash for a given hotel night, so I can easily turn my points back into cash. Any price under half a cent and I’m basically making money on the transaction.

Ben asks me three questions:

So I have three questions for Gary based on that:

Do you really only value a free night at a top tier hotel in an expensive city at $200?
If so, is that the case at Hyatt and Starwood as well?
What do you value Hyatt Gold Passport points at?

No, I valued the Conrad Koh Samui at more than $200. I explained that I took what was essentially $200 cash to me (40,000 Hilton points) and used them to get something worth more than the $200 I was paying for it.

I wouldn’t have paid $850 for the room. At $850 I wouldn’t have made the trip. I love points. They enable me to do things I wouldn’t otherwise have been able to do. To travel in a style well beyond my means. To experience much more of the world than I’d otherwise be able to.

But that doesn’t mean that I’m buying points, a fairly risky asset, at anything close to the amount I valued my aspirational award redemption.

Meanwhile, I value a Hyatt Gold Passport point at about 1.3 cents. Again because of the value I can get most any time at the median property I will stay at, where I’m basically able to turn the points back into cash.

Ben answered my question about his own credit card spending, and I think it’s an important question.

Here’s what I asked,

How much have you spent this year on the Starwood American Express and how much have you spent on a Hilton credit card? That’s called revealed preference.

Only I asked the question the wrong way.

Ben replied,

$299 on the Starwood American Express at Le Meridien San Francisco, and $25 for a Starbucks reload on the Hilton Reserve Citi card, as I just got it last week.

So allow me to rephrase the question: how much have you put on the Starwood Preferred Guest American Express over the past three years?

How much have you put on a Hilton card over the past three years?

I understand that you just got the Hilton Reserve Visa. You’ve been carrying the Starwood Amex for some time, if I understand your past posts you’ve used it a good bit. Why didn’t you get a Hilton credit card earlier, if you believed that earning 3 Hilton points per dollar was more valuable than what you were doing?

Certainly it’s not because Hilton points have gotten more valuable. Just a couple of years ago they went through a big devaluation of their points, after all.

Ultimately I appreciate the exchange that Ben and I had on this. It’s helped me to better articulate my standard for describing the ‘value’ of a point — which is really a relatively illiquid currency without an independent Central Bank, and with legal restrictions (such as the inability to sell or barter that currency). And hopefully it’s been helpful, or at least mildly interesting for some readers, to see how different people with different (despite strikingly similar) perspectives come to the beliefs and decisions that we do. I think it’s always great when we can expose our thinking, logic, and biases. That only makes it easier for readers to figure out when our advice best matches a given need or situation.