Yuletide Economics 101
While they waited in line this morning, I wonder if any Black Friday shoppers read George Will’s op-ed, “The Gift of Not Giving,” in the Washington Post. He explains that holiday-related shopping activities destroy wealth and aggregate utility.
Gifts that people buy for other people are usually poorly matched to the recipients’ preferences. What the recipients would willingly pay for the gifts is usually less than the givers paid. The measure of the inefficiency of allocating value by gift-giving is the difference between the yield of satisfaction per dollar spent on gifts and the yield per dollar spent on the recipients’ own purchases. [...]
Were it not for sentimentality about sentiments, which are highly overrated, we would behave rationally, giving cash, thereby avoiding value subtraction.
For our Easter baskets, beginning a couple of years ago, my sisters and I convinced our parents to give us cash instead of candy. Our reasoning wasn’t as well-worded as Will’s, but the principle was the same. If we really wanted candy, we could use the money to buy it. Mom and Dad agreed because it saves them a trip to the store. Plus, they’re not wasting money on plastic eggs and baskets every year. Cash is better because it doesn’t expire, unlike candy and gift cards. The Harbin family destroys no wealth on Easter.
If efficiency and utility rule every day, then I suggest never getting married [prostitutes are cheaper, if you are so inclined], never picking up a check and never doing anything outside of your self interest.
Gift-givers are willing to take the risk that they will come up with a gift that the gift receiver will like and cherish. The gift receiver
Behavioral economics would even say that you value something that you have/like more than it would take to replace it.
Companies even offer non-cash rewards, like vacations for sales forces, as incentives as well.
The sensible thing to do is buy things and put the gift receipt with the present. However, for your own wealth, make sure the debit comes back on your charge card. Not really for me, but some would do that.
Comment by Papillon — November 30, 2009 @ 9:50 a.m.
I thought the goal of presents was to give something the recipient could not or would not get for himself. The giver’s imagination and sympathetic understanding of what would be “just right” is supposed to add value. Giving a commodity such as a kind of candy already known to the recipient is a waste; finding some new interesting treat the recipient has never tried adds value.
Comment by Margo — November 30, 2009 @ 1:47 p.m.
Papillon, any personally fulfilling emotional response — happiness, love, satisfaction — is something that an economist would include within the broad umbrella of “utility.” The term entails much more than narrow financial calculation.
Giving gifts is a form of signaling — an attempt to demonstrate that you understand another person well enough to divine their interests and spend time trying to cater to them in a unique way. The possibility of successful signaling (although a gamble) is often enough to outweigh the probable lower return from the gift itself than from outright cash, which is probably why gift-giving persists.
Although selecting and giving a gift is ultimately a form of gambling that you’ll beat the odds and bring more utility, or satisfaction, to somebody’s life than you might have with cash alone (or by giving nothing at all), it’s a much better bet than many other forms of gambling. For instance, lottery tickets provide an almost nil chance of significant success, and a vanishingly slim possibility of minimal return — it’s almost entirely gamble. Gift giving provides a sizable opportunity for significant success in any particular iteration, although lower than even odds over time. Those odds can be improved, however, with adequate strategizing.
Comment by Eric D. Dixon — November 30, 2009 @ 2:21 p.m.
The act of searching for presents takes a lot of time and energy, and this increases their cost because people could be spending their time in other activities. I read an article recently about people who lined up at 5:30 PM on Thanksgiving to wait for stores. Is it really worth the 12 hours that they spent waiting in the parking lot? Have they considered their opportunity cost (i.e., what they’d make if they spent their time working instead of standing in line, their utility if they spent the time in leisure instead of the parking lot)?
Around this time of year, we are giving gifts just for the sake of giving gifts. We subscribe to sayings like, “it’s the thought that counts.” Individuals are focused more on the fact that they bought something (anything), and less on whether this gift will generate any utility for the recipient.
The author of Scroogenomics, Joel Waldfogel, talks about this idea in an interview posted on the the Real Time Economics Blog on WSJ.com in October. He discusses the fact that people do a more thorough cost-benefit analysis when they are shopping for themselves than when they are shopping for others:
Also, I think that Waldfogel’s last point is important:
Margo, I agree with you that value can be added with gift giving. However, this only occurs when the gift is well-fitted to the preferences of the recipient (i.e., when it is “just right,” as you wrote). Value is not added when you give your friend an ugly sweater when they in fact hate the sweater and want something else.
Comment by Christine Harbin — November 30, 2009 @ 3:13 p.m.
Another interview with Waldfogel is here:
http://press.princeton.edu/titles/8972.html
It’s funny to watch him try to explain why Scroogenomics would make a good gift!
Comment by Sarah Brodsky — November 30, 2009 @ 3:23 p.m.
Christine,
The opening salvo in the War on Christmas has been fired by your laptop! We don’t get each other Christmas gifts because of the mutual benefit of trade or ’signaling’ or any other lame reason. We get them because we love our families and we remind ourselves of that greatest gift we were given at Christmas: Christ Jesus our Lord and Savior.
After [the Magi] had heard the king, they went on their way, and the star they had seen in the east went ahead of them until it stopped over the place where the child was. When they saw the star, they were overjoyed. On coming to the house, they saw the child with his mother Mary, and they bowed down and worshiped him. Then they opened their treasures and presented him with gifts of gold and of incense and of myrrh.
Myrrh, Chrissy! Myrrh!
You Free Marketeers need to watch A Charlie Brown Christmas.
Comment by David C. Miller — November 30, 2009 @ 6:07 p.m.
David,
Although I would appreciate the thought, please don’t give myrrh for Christmas this year. I am concerned that the utility that I get out of would be less than the price that you paid for it.
How about we give each other cash transactions of $20 instead?
Comment by Christine Harbin — December 1, 2009 @ 10:18 a.m.
Modern Christmas disgusts me:
http://unpopularideasclub.blogspot.com/2009/12/christmas-is-for-people-who-like-christ.html
Comment by vroman — December 8, 2009 @ 12:39 p.m.