Gifts!

After the previous post on bribes masquerading as gifts, here comes a post on what the social scientists have been saying about gifts -- genuine ones -- this holiday season. Start with the New Yorker article by James Surowiecki on the deadweight loss of Christmas:

... A deadweight loss is created when you spend eighty dollars to give me a sweater that I would spend only sixty-five dollars to buy myself. [Joel] Waldfogel [of the University of Pennsylvania] estimates that somewhere between ten and eighteen per cent of seasonal spending becomes deadweight loss, which means that billions of dollars a year is now going to waste.

Why aren’t we better at gift giving? A lot of the time, we don’t know the people we’re shopping for all that well. Much of the deadweight loss that Waldfogel found was caused by older people, who may not be attuned to what their young relatives really want, and are therefore more likely to give gifts that recipients value less. More surprisingly, though, we’re also bad at buying for the people we’re closest to. A recent study by the marketing professors Davy Lerouge and Luk Warlop finds that familiarity can actually lead us astray. They ran a series of experiments with long-standing couples in which the partners tried to predict each other’s taste in furniture—a sort of academic version of “The Newlywed Game”—and found that, in general, people did a poor job of it. In making predictions, people tend to rely on what Lerouge and Warlop call “pre-stored beliefs and expectations,” rather than paying close attention to what their partner really liked. People did a good job of predicting their partner’s preferences, in fact, only when they shared those preferences. My idea of what you want, it turns out, has a lot to do with what I want.

Over at Aplia Econ Blog, Chris Makler elaborates on the economics of gift giving -- with links and review questions! Aplia is a company that offers "interactive course tools to help better prepare economics and finance students."

The NYTimes carried an article about the gift vouchers. You know, the kind that's not used!

Shoppers across America have millions of gift cards tucked away in envelopes, drawers and wallets. And some of the nation's largest retailers are profiting as a result.

"It can be fun to get them, but then I forget about them," said Deborah Cabaret, 46, who has hundreds of dollars worth of unused cards. "Or I walk into the store, I look around, I don't know what I want, and I leave."

Seth Roberts speculates on the evolutionary significance of the culture of gift giving:

Humans are the only animals with occupational specialization — we specialize, and trade. It started with hobbies. Hobbies became part-time jobs. Part-time jobs became full-time jobs. To support full-time jobs — to generate enough demand — there has to be enough expertise, which builds up slowly. To build up expertise, our brains changed so as to cause creation of special events like Christmas, Japanese New Year, Spring Festival (in China), and a thousand other examples around the world. Such events increase the demand for high-end craftsmanship, thus helping the most skilled craftsmen — the ones most likely to advance the state of their art — make a living. Christmas increases the demand for Christmas cards (fine printing) and Christmas-tree ornaments, for example. Traditional gift-giving has the same effect: It increases demand for “the better things in life.” Most gifts, if you follow the usual norms, are (a) not something you would buy for yourself and (b) not something the recipient would buy. ... They are harder to make — and thus reward skilled craftsmen more — than the stuff we buy for ourselves, just as Christmas ornaments are harder to make than common household objects and Christmas-card printing is more difficult than most printing. Weddings, with the gifts, finery, invitations, etc., are another example.

Next up, we have Alex Tabarrok, who says gifts are really about appealing to the recipient's wild side:

Gift giving, therefore, is about reaching out and giving to the wild self in someone else. Why would we want to do this? Because we want the wild self in someone else to be wild about us.

The bottom line? If you want to please the economist in me, send me cash. If you want to please my wild self (you know who you are!) use your imagination.

Fabio Rojas, on the other hand, says gifts are about memories:

Here’s my sociological defense of presents: Let’s say that the present’s value = (immediate use value to recipient) + (value of the memory of the present). That is, the present’s value for the recipient is not just the cash value, it’s also how often it helps you remember your relationship to the giver. Teppo might think it is very funny that I gave him a velvet Elvis that cost me $100, which he values at $80. A life time of laughing at my poor taste is probably worth a lot more than $20.

He has another hypothesis:

Presents are not valuable to the recipient - they are valuable to the giver! Why? Gifts create a sense of obligation and good will toward the giver. The value comes from the fact that the recipient owes you something in the future. You can even deduce novel predictions from this theory. For example, the best presents go to the most trust worthy friends and relatives because the gift is a downpayment for a future favor. It also explains the gifts given from bosses to employees, instead of bosses just increasing the yearly salary.

And finally, Mark Thoma directs us to an interesting fisking -- in ten parts! -- of a physical product which is also a favourite gift for many people: very expensive chocolate! He indicates that this belongs to the "market failure in everything" category!