{"id":39423,"date":"2017-12-19T04:45:26","date_gmt":"2017-12-19T10:45:26","guid":{"rendered":"https:\/\/michaelhyatt.com\/?p=39423"},"modified":"2017-12-19T04:45:26","modified_gmt":"2017-12-19T10:45:26","slug":"gift-giving-economy","status":"publish","type":"post","link":"https:\/\/fullfocus.co\/gift-giving-economy\/","title":{"rendered":"The Real Economy of Gift-Giving"},"content":{"rendered":"

Exchange and gift-giving have been a part of everyday human behavior since the dawn of mankind. So, it should be no surprise that these activities are also part of holiday celebrations\u2014such as Christmas, Hanukkah, and Eid Al-Adha.<\/p>\n

Many of us remember the excitement of wondering what presents Santa Claus\u2014or, as we discovered later, our parents or grandparents\u2014had stowed away under the tree for us. Many of us also remember the disappointment that came with receiving a gift that wasn\u2019t what we wanted or even something we would never have chosen for ourselves.<\/p>\n

I often recall the fantastic scene from A Christmas Story<\/em> in which young Ralphie Parker is cajoled into trying on the pink rabbit suit his Aunt Clara made for him. Ralphie\u2019s father says he \u201clooks like a deranged Easter Bunny.\u201d We\u2019ve all been there or somewhere close, judging by the unworn ties hanging in our closets or the expired gift certificates gathering dust at the bottom of the sock drawer.<\/p>\n

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The economic costs of disappointing gifts don\u2019t just include the lost value from unwanted gifts, but also the time and frustration of handling returns\u2014on top of the original disappointment. Your friend or relative either doesn\u2019t know you as well as they think or didn\u2019t take the time to figure it out. Stress and hurt feelings are actual costs\u2014they\u2019re just hard to quantify.<\/p>\n

Economists have a term for the negatives caused by unwanted gifts: deadweight loss<\/em>, which is a loss that is not offset by gains to anyone else. In a normal transaction, all parties to the transaction are better off because they made the transaction. Otherwise, they wouldn\u2019t make the deal in the first place.<\/p>\n

Similarly, when shopping for ourselves, we pretty much know what we want and are able to purchase something that meets whatever need we had in mind. We receive the full benefit of the transaction because we have direct access to our own wants, needs, and desires.<\/p>\n

When buying for someone else, though, even someone we know very well, there is a pretty strong likelihood that we won\u2019t be able to predict the recipient\u2019s preferences as well as she would. So we end up with significant deadweight loss each holiday season as gifts are given that aren\u2019t fully valued by their new owners.<\/p>\n

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I can hear you thinking, \u201cSurely, an ugly sweater and a few unwanted toys can\u2019t add up to much?\u201d It depends on how you do the math. Economist Joel Waldfogel, whose first paper on this subject way back in 1993 was titled “The Deadweight Loss of Christmas,” estimated that the lost value from holiday giving amounts to billions of dollars each year.<\/p>\n

He therefore advocated we eschew presents for gifts of cold hard cash. That way, he reasoned, the recipient can get exactly what he wants and the giver can get the warm fuzzies, knowing that she got the most efficient gift possible. Sounds good, right?<\/p>\n

Well, no.<\/p>\n

I will never forget, mainly because my siblings will never let me, one particular Christmas. While studying economics in college, I had read about the \u201cefficient gift-giving hypothesis\u201d and it made perfect sense to me. As stocking stuffers that year, I \u201cartfully\u201d wrapped $5 bills around candy canes and placed them in my three siblings\u2019 stockings. They were underwhelmed. And my explanation of how efficient the gift was didn\u2019t exactly warm the cockles of their hearts. What went wrong?<\/p>\n

Those close to you aren\u2019t just deriving value from the gift itself. They\u2019re receiving a bundle of values or utility<\/em> (the economic term for the way we value or find usefulness in everything). So, the recipient is receiving not merely the value of the gift itself, but also the value of the warm fuzzies. She knows that someone cared enough to take the time to get to know her and tried to find a gift that would make her happy. In more than a few cases this additional utility of lovingkindness may make up for a gift that isn\u2019t precisely what someone might have bought for herself.<\/p>\n

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