It was Christmas Eve, when in the whole house not a single creature was moving – except for economists who are busy putting money in envelopes for loved ones, because it is the gift of the day. more efficient “.
Economics takes on its full meaning as a “gloomy science” during the holiday season, as its practitioners shake their heads in disapproval of buying freebies.
The most prominent “bah humbug” dealer in the profession is Joel Waldfogel, the father of “Scrooge-onomics” who has been talking about the “orgy of value destruction” in buying Christmas gifts for over 20 years. years.
His theory of Christmas’s âwindfall costâ is that billions are wasted on unwanted gifts because they are valued less by the recipient than by the giver.
The heartwarming 1992 article says “it is more likely that the gift will leave the recipient worse off than if she had made her own choice of consumption with an equal amount of money.”
“Non-cash gifts from relatives (like Aunt Joan’s vile date) are the least effective and destroy about a third of the recipient’s value.”
Waldfogel’s family Christmases must be a total blast.
Gifts from friends and “important people” tend to be the most effective, he says, though far from perfect.
Non-cash gifts from the rest of the family (like Aunt Joan’s vile date) are the least effective and destroy about a third of the recipient’s value.
But if you don’t succumb to the world of purely rational economic beings that only exist in textbooks, and still want to buy a present instead of giving your loved one a few tens of dollars, then what?
Gift certificates may be the way to go, as they seem more thoughtful than a cash gift and avoid the stigma of handing out tickets, according to US economist Jennifer Offenberg.
However, the risk of “deadweight loss” still looms large. This is because gift cards are prepaid by the giver, but around 10% of them are never used, which is why stores are keen to promote them through checkouts in the first place.
Depressingly enough, Offenberg recommends that to play it safe and reduce the risk of loss in value, you should buy gift certificates for general-purpose stores (essentially the vouchers look as much like cash as possible), everything by avoiding gift cards from more specialized chains such as jewelers.
She happily adds that “Donors who plan to offer a gift card may want to keep in mind the possible benefit of a cash gift with a note to the recipient suggesting the money could be spent at. [insert name of store here] to add the thought that counts â.
Merry Christmas to you too, Jennifer.
If after all of this you are still absolutely determined to be recklessly inefficient and buy a real giveaway, behavioral economists have some useful information.
As Cass Sunstein, co-author of the behavioral bible Nudge with guru Richard Thaler, puts it: If people aren’t very good at making decisions for themselves, it’s hardly realistic to expect ‘they make smart decisions on behalf of others.
So, to brave the last minute hordes this year, there are some pitfalls to avoid.
One is the optimism bias: buying the gift for the idealized recipient rather than the actual recipient, so little Johnny gets Shakespeare’s complete works for Christmas instead of an Xbox.
Self-centeredness can also be a problem, as we tend to have an exaggerated idea of ââhow similar people are to us, which can influence our gift purchase.
And don’t forget the projection bias: when it’s cold, we buy more sweaters and, according to Sunstein, the return rates on cold weather gear purchased in cold weather are “unusually high.”
There is also the concept of “experience value”: gifts like a hot air balloon ride or a flying lesson tend to be remembered long after socks and pants have been thrown in the trash.
With that in mind, good hunting.
And for a truly merry Christmas, forget about Grinches like Waldfogel and keep in mind the wise words of American novelist and friend of Mark Twain, Charles Dudley Warner: “The excellence of a gift lies in its relevance rather than its relevance. value.