Friday, December 26, 2008

Avoiding Xmas Deadweight Loss

Today marks the beginning of "Reverse Christmas." That is, instead of selflessly buying gifts for loved ones, we selfishly exchange those gifts for what we really wanted. This got me thinking, what exactly is the deadweight loss of gift giving?

One of the complaints about the economists is that they know the price of everything, but the value of nothing. Hopefully I won't sound like too much of a scrooge. The main question is: what is the benefit of giving gifts? Almost surely I am better equipped to buy presents for myself, yet I still enjoy giving and receiving presents. Why? I think it's because there is value in feeling known. We like it when people plan for us and when they know us personally, both which are essential for a quality present. So how can we avoid the mass present returning and not using (10% of money on gift cards is never be redeemed)?

I have two recommendations:
  1. Give guilty pleasures that someone wouldn't buy for themselves.
  2. Give in your expertise. Stick with what you know and specifically with what the receiver doesn't know. Essentially the goal is to give a gift that they couldn't as easily give themselves.


  1. Or alternatively said people who are difficult to shop for could post their wish list to others ahead of time and vow not to buy anything after August of each year in hopes that other folks will buy said items.

  2. Ha, ha nice point Chi. But I bet there is a trade off in the value of being known for present accuracy.

  3. Justin10:53 PM

    I have felt for a long while that people telling me what to buy them kills the element which is the very essence of the joy of gift-giving and for that matter, romance - surprise.

  4. Yeah I think you're right Justin. Oh and by the way thanks for my floral teapot.

  5. "The most conservative estimate put the average receiver's valuation at 90% of the buying price. The missing 10% is what economists call a deadweight loss: a waste of resources that could be averted without making anyone worse off."


    "The lesson, then, for gift-givers? Try hard to guess the preferences of each person on your list and then choose a gift that will have a high sentimental value. As economists have studied hard to tell you, it's the thought that counts."

  6. Maybe this is just me, but at this stage in my life, I appreciate it when people give me what I ask for because there are a lot of things that I'd like to have that I just can't afford at the moment. Buying most things right now is a luxury for us, so being able to ask my parents or in-laws for a new sweater or a book I've been wanting is really great. Even though I could buy it for myself technically, it's easier to justify having it if someone else is buying it for me. Make sense? As I said though, I think that this is just because of my current stage of life (i.e., husband in graduate school + new baby + part-time job= little frivolous spending).

    That being said, I think that my favorite gifts are "experiential" gifts. My mother-in-law often will give us gift cards for restaurants in town, and we love getting those because it gives us an excuse to go out and do something together that we would not otherwise do.



You are the reason why I do not write privately. I would love to hear your thoughts, whether you agree or not.