http://unpopularideasclub.blogspot.com/2009/12/christmas-is-for-people-who-like-christ.html

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?

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.

http://press.princeton.edu/titles/8972.html

It’s funny to watch him try to explain why Scroogenomics would make a good gift!

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:

“Throughout the year, we shop meticulously for ourselves, looking at scores of items before choosing those that warrant spending our own money. The process at Christmas, by contrast, has givers shooting in the dark about what you like… to make matters worse, we do much of this spending with credit, going into hock using money we don’t yet have to buy things that recipients don’t really want.”

Also, I think that Waldfogel’s last point is important:

I like to give. I’m not against giving. I’m just against bad giving.

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.

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.

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.