The Economic Inefficiency of Gift Giving: Why You Shouldn’t Buy Presents

This is exactly why I buy presents. If I give my dad $250, he will not buy a smart thermostat. The economic utility to him of a smart thermostat is not that high versus, say, $250 in gasoline or food. He'll fill his tank every time. He does _want_ a smart thermostat - it's just not justifiable to him at the price point. At the same time, though he likes having food and gasoline, having more will not bring him joy per se.

That's where the gift giving comes in. I buy him a smart thermostat, effectively giving him license to have the nice object he cannot otherwise justify†. The economic destruction is the point.

†Based on a true story.

As an adult with a good job, there is nothing in the typical "gift price range" that I really want or need but don't have - if there were, I'd buy it myself. You have to really know me to understand what falls in the "he'd like it but wouldn't bother to get it himself" category. OTOH as I simplify my life it turns out some of my most valued items that I'm keeping around were very expensive gifts that fall in that same category because of the high price.

Edit: This does suggest a strategy of pooling everyones money together to get a single gift that a person would not otherwise buy.

It's almost as if humans are emotional beings that strive to make themselves and those around them happy, even at the expense of micro-inefficiencies.

This guy must be great at parties... "You know, you should really remove the ice from your soda and drink it warm. Studies have shown that it will help your body maintain a more consistent blood-glucose, preventing a sugar crash"

It's like the holidays. We draw names, pick a spending limit... Here's $25 of stuff you don't want, for $25 of stuff I don't want. Merry Christmas!

While the article's point is well-taken and frequently correct, I'll disagree in part.

In the best of cases, the value brought by a gift can radically exceed the market value of the gift itself.

Time with a loved-one or assistance in a time of need can, indeed, be priceless; something the recipient could not have realistically gotten for themselves, especially on short notice, at any price.

A gift of something that someone would, without doubt, enjoy but never acquire for themselves can also unlock value that otherwise never would have existed. I can think of a few such gifts in my lifetime that made a huge impression.

A helpful rubric in most cases, though, is to ask, "does the gift I'm about to give impose significant obligations onto the recipient?" If so, it may be very wise to alter the gift in such a way as to limit the ways in which the recipient's future may be restricted.

Cash is pretty good in this regard -- it carries few obligations and is as fungible as anything created by humans. It can frequently be traded for time, the most-precious of all commodities.

Gifts serve social and political purposes and are not simply a medium of economic exchange. Historically, gifts were a way of signaling surplus to gain trusted friends, establish status, make alliances, compensate victims of wrong-doing and squelching the rage of would-be enemies.

The loss of efficiency and the wasted resources are precisely the point. "I have enough to destroy my own wealth for your benefit" was, for most of human history, the way to gain status in your tribe. Productive and occasionally generous people became leaders.

In modern western culture, the mutual holiday gift exchange may not seem like it has much to do with status - but then why do we open gifts in full public view rather than retreating to separate rooms to open them in private? There is clearly a family/social dynamic at play that goes well beyond economic exchange. You could even re-frame the "waste" of gift giving as an investment in social infrastructure.

It's a good thing human relationships are entirely based around increasing efficiency, or this sort of thing would come off as sad and off-putting.

The point of gifts for most people is to remind them of their loved ones.

Sure, that bottle of wine might not have been the one you would have bought on your own, but the fact that you can say “hey let’s try that wine X got for us” is a utility-adding thing for most people.

Sounds like (as is often common In economics and social sciences) the researcher didn’t do a good job of understanding his own biases before publishing.

This might be true, and I'll admit that I didn't read the article, but I would add that not everything can be explained by economic efficiency. For example: poems--a really bad use of your time (think of the opportunity cost), drawings from your 6 year daughter--almost worthless on the resale market, a ticket for free hugs--completely unsustainable business model. But you know, sometimes it's good just to be a human, with memories of other humans doing human things. Naps, too, are bad for business, but somehow I never regret taking one.

It's hard to go wrong with some bars of chocolate. In case the receiver doesn't fancy chocolates, they can either be served to guests, or even regifted (just try to avoid cycling back to original giver:-).

If it's somebody's 60th birthday, try find a bar with a clearly advertised 60% cocoa content to add some personalization.

Of course this only works as a relatively low value gift...

I think this applies to adults only. Kids vastly prefer gifts over cash.

The most ironic part of this post is he concludes by asking you to donate. Isn't that a gift given to express your appreciation?

What about giving someone a tangible gift, like tickets to indoor skydiving? Give them an activity instead of a physical object.

\begin{rant}

I hate gift giving entirely. Not for economic or ideological reasons, but because buying gifts stresses me the hell out. I don't even like receiving gifts because they come with an unspoken implicit reciprocation. This means I have to buy them something at some point. The better and more thoughtful the gift to me, the greater the anxiety and stress that I feel about trying to be a good a friend by getting something as good and thoughtful for them -- I am terrible at this. I end up getting something they don't want or need which instead of being a good, is a net negative for them because now they have to pretend to like it and then store this unnecessary thing for an indefinite period. Some people do like giving gifts and are good at, I am not and hate it. Now some people may read this and may suggest getting an experiential gift like buying dinner or so on, and yes I have thought of these but its not the same. If I go out with someone and pick up the check, it doesn't have the same gravitas as giving them a wrapped box with a thing in it.

\end{rant}

I agree. For example, holiday gift-giving seems to be taken on as a dreary and/or anxious obligation by everyone I know.

I guess we do it for the subset of people whose "love language" is gifts. But it would be gauché to just give gifts to those people, so now we have to do this whole mess.

sometimes other people know what you want better than you do.

I guess the headline "Jewish Economics Professor Thinks Christmas Should Work More Like Hanukkah" might have given the wrong impression.

Lest others get the wrong impression: I just think it's funny, it isn't intended to cast aspersion on Professor Waldfogel, Santa Claus, or anyone else.

The Chinese also favor gifts of cash over gifts of stuff in many circumstances. It has advantages when it isn't culturally inappropriate.

I would add that I consider a thoughtful gift more valuable than the cash would be, because it shows caring in a more specific way than a red envelope or gelt. But is the median gift thoughtful? I'll leave that for the professors.