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the economy of gifts

holiday giftsWith Christmas approaching, I’ve been thinking a bit about something my flatmate the economics Ph.D. once told me about economics and gift-giving. According to her, economically, the practice just doesn’t make a lot of sense. More specifically, if we’re trying to use our resources to satisfy our desires, then we’re all better off not buying gifts and each using the money on ourselves.

Michael Sandel describes this problem in his book What Money Can’t Buy:

Joel Waldfogel, an economist at the University of Pennsylvania, has taken up the economic inefficiency of gift giving as a personal cause. By “inefficiency,” he means the gap between the value to you (maybe very little) of the $120 argyle sweater your aunt gave you for your birthday, and the value of what you would have bought (an iPod, say) had she given you the cash. In 1993, Waldfogel drew attention to the epidemic of squandered utility associated with holiday gift giving in an article called “The Deadwood Loss of Christmas.” He updated and elaborated the theme in a recent book, Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays: “The bottom line is that when other people do our shopping, for clothes or music or whatever, it’s pretty unlikely that they’ll choose as well as we would have chosen for ourselves. We can expect their choices, no matter how well intentioned, to miss the mark. Relative to how much satisfaction their expenditures could have given us, their choices destroy value.”

Applying standard market reasoning, Waldfogel concludes that it would be better, in most cases, to give cash: “Economic theory – and common sense – lead us to expect that buying stuff for ourselves will create more satisfaction, per euro, dollar, or shekel spent, than does buying stuff for others . . . Buying gifts typically destroys value and cano nly, in the unlikely best special case, be as good as giving cash.”

On the surface, at least, this seems logical. I only have so much money to spend, and every dollar I spend on a gift is a dollar I can’t spend on myself. If I have the choice to spend $30 on a gift for my sister, or $30 on something I really want, then at best I’m trading $30 worth of satisfying Marta-desires (the amount of my desires I could satisfy by spending $30 in the way that seemed best to me) for $30 worth of satisfying Katie-desires. Set aside the fact I love my sister and want to do something nice to her, get some joy from seeing her receiving the gift and thinking about her using it, and focus just on the economics of the situation. Is this the most efficient use of my dollars?

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Originally published at Faith Seeking Understanding. You can comment here or there.


( 7 comments — Leave a comment )
Dec. 23rd, 2013 05:37 am (UTC)
Lots of things on your list I would enjoy! I dislike Christmas gift giving and simply give photo calendars to all my good friends.I love choosing birthday gifts.I get more pleasure giving than receiving gifts usually.

Interestingly enough, my online friends usually choose gifts that give me more pleasure than the folk I've met in the flesh.

Two of the nicest gifts I've had in recent years were the Kindle you gave me and a calendar of her artwork from a LJ buddy who had illustrated some of my stories!
Dec. 24th, 2013 09:16 pm (UTC)
That Kindle hardly counts as a gift, Linda. I had a new one and no use for the old one, and I love knowing it's not just collecting dust on my shelf. From my POV, you're doing me the favor by putting it to good use. But I'm glad you appreciate it!

ANd I think you're right about fannish friends: those gifts are always the best! :-) Glad you liked seeing my list. A Merry Christmas to you!
Dec. 23rd, 2013 11:59 am (UTC)
Speaking as the daughter of an economist, I think the most important lesson to be learned from Waldfogel's book is this: Economists know absolute bupkis about why people give presents.

Seriously, I think that there are a lot of things in life that can't be reduced to "efficiency," and that gift-giving is one of them. It's about pleasure, it's about love, it's about status, it's about veiled communication, it's about hints, it's about community bonds, it's about so many things that are way outside the purview of economics. As well ask, say, an ethnomusicologist to tell you about the best allocation of your market utiles for your dollar! (Vocab entirely gleaned from visiting Dad Pony's Econ 101 class this fall.)

Even with the scarf debacle, your family got some wonderful intangible value out of it. You got a story that you can still tell and use to entertain people for years to come, just as you did in your post.

When I choose gifts for people, I think I go for a combination of A) things they've told me they want, if they've done so; B) things along a general theme of things I know they like; and C) things I happen to see that remind me of them. Rarely does this combination turn out horrible results. Even if they never use the gift itself, they know that I was thinking of them, and why, and how.
Dec. 24th, 2013 09:15 pm (UTC)
Economists know absolute bupkis about why people give presents.

Indeed. And I think that's the point that keeps drawing me bac to this question: that there's more in heaven and earth than can fit in that free market philosophy. The real point of this discussion as that some economists have this idea that everything of value can be accounted for in economic terms.

I love your approach to gift-giving, btw. Makes me thinks of my own past "bad" gifts in a more positive light.
Dec. 24th, 2013 09:17 pm (UTC)
Also: happy holidays. Hope you're staying warm and toasty.
Dec. 23rd, 2013 02:02 pm (UTC)
Oh, I love your wish list, (especially that you have charities on yours!) Following the theory that sharing such info can help to know someone better, here's mine, that I've never shared with anyone but my husband before. He has always asked me what I want, and for years I'd be at a loss to think of something off the top of my head. I've kept this list up for a few years now all along adding to it or changing it whenever I see something online that appeals to me, and just refer it to him when he asks now.

As to gift-giving, I think it is something very important and not at all related to economics. It's an expression of regard and thoughtfulness towards others. There's a special reason for giving beyond just fulfilling tradition: it focuses our attention on someone else, makes us wonder what that person wants and how to please him/her. Money doesn't even have to enter into it.

Look at fandom: one of the most popular exchanges in fanfiction is Yuletide. People choose to fulfill the wish for a story from a perfect stranger--the only guide to what that person wants their stated request for a fandom, and perhaps a letter in their LJ. It generates thousands of free stories that cost the giver nothing but time, effort and imagination. Yet for many people, the story they get is the highlight of the holiday season. Not only that, but hundreds of people besides the selected recipient will also get the chance to enjoy the gift!

And in smaller exchanges, the participants may know one another a little better, but the joy and anticipation are just the same. All over the world, there will be people whose favorite gift is the one they will open up their computer to recieve; a story, or a bit of fanart, or simply a post of greetings from a friend they've never met.

Perhaps a lot of my attitude about giving is influence by my fandom. Hobbits set a lot of store in giving gifts. Not only do they give a lot of them, but they are supposed to do so without thought of reciprocity, and the gifts are not supposed to be "shown off" (going by what JRRT said in Letter #214 it's in very poor taste to display a gift to everyone, especially at a wedding! Re-gifting is common in the Shire, as are the giving of homemade items or simply "found" things. It's the act of consideration of others that seems to underlie the Shire customs of giving: thinking about what the other person would like, whether it hits the mark or not, is the important thing.

Bilbo would be horrified at the thought that he'd be better off spending his dragon-gold on himself rather than on others!

Dec. 24th, 2013 09:12 pm (UTC)
I think you're on to something, and that's why I find this problem so fascinating. I talk about it with my philosophy students under a different label nearly every semester. I think for a lot of people there's this assumption that everything can be boiled down to economics and efficiency. You put a value on something, telling what you'd be willing to sacrifice for it. But gift-giving can't really be explained under that rubric: these exchanges really do seem to create more happiness than we put into them, and they're about more than just efficiency. That's troubling for people who think everything can be boiled down to an equation and there's nothing the free market can't account for.

Which is not me, ergo my interest. :-)

Anyway, I'm really glad you liked my wish list! It's fun to share it with friends, no question. And a happy holidays to you!
( 7 comments — Leave a comment )



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