Turns out I've had this around for awhile:
Dec. 4th, 2005 07:09 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
likethebeerSo, Scrooge was right after all
December 24, 2003
Gift giving is irrational - unless, perhaps, you are hedging your bets, says Ross Gittins.
It's a little-known fact that the first economic rationalist was Ebenezer Scrooge. That's because economists simply can't understand why people would do something as stupid as giving presents at Christmas.
Conventional economics teaches that gift giving is irrational. The satisfaction or "utility" a person derives from consumption is determined by their personal preferences. But no one understands your preferences as well as you do.
So when I give up $50 worth of utility to buy a present for you, the chances are high that you'll value it at less than $50. If so, there's been a mutual loss of utility. The transaction has been inefficient and "welfare reducing", thus making it irrational. As an economist would put it, "unless a gift that costs the giver p dollars exactly matches the way in which the recipient would have spent the p dollars, the gift is suboptimal".
This astonishing intellectual breakthrough was first formulated in 1993 by Joel Waldfogel, an economics professor now at the University of Pennsylvania, in his seminal paper, The Deadweight Loss of Christmas.
The difference between what givers pay for presents and the value the recipients put on those presents is the loss being referred to and, since it's equivalent to tearing up banknotes, economists call it a "deadweight" loss.
It follows from this insight that, if people must persist with gift giving, they should at least minimise the loss by giving money rather than items in kind.
Trouble is, were families to assemble on Christmas morning for an equal exchange of $50 cheques, the pointlessness of the exercise would quickly become apparent.
But I must tell you that, since I first wrote about The Problem of Presents, research has continued apace - just in case there's some factor the economists have overlooked.
Typically, their main approach has been to search for some hidden consideration that makes the seeming irrational rational after all.
One possibility is that gifts may procure a source of insurance for the giver. Parents, for instance, may give gifts to their children in the hope the children will care for them in their old age. Adult children may give gifts to their elderly parents in the hope of being remembered at that last great gift giving with lawyers present. Then, money will do fine.
Another line of inquiry is that gifts, particularly inefficient ones, serve as costly signals of the giver's intention to invest in a future relationship. Or maybe gifts are exchanged to break down mistrust, permit co-operation and build relationships.
But such a model doesn't explain why people continue to give gifts in well-established relationships where there is little mistrust and dumb signalling isn't necessary.
The guru Waldfogel has recently refined his calculations on Christmas's deadweight cost, using a new survey to estimate that, per dollar spent, people value their own purchases 18 per cent more than they value items they receive as gifts. (Being a rigorous scientist, the prof has carefully excluded any allowance for the "sentimental value" of gifts.)
Waldfogel's case is bolstered by the news that, according to a US survey conducted by American Express, 28 per cent of respondents admitted to engaging in "gift recycling".
In the course of their inquiries, researchers have discovered that women are much more involved in gift giving than men. Their surveys suggest that women give Christmas gifts to more people than men (on average, 12.5 versus eight), start shopping for gifts earlier than men, devote more time to selecting the appropriate gift (2.4 hours per recipient versus 2.1 hours) and are more successful in finding a desirable gift (10 per cent of women's gifts were returned to the shop versus 16 per cent of men's).
Researchers have also stumbled on the revelation that the practice of shouting rounds of drinks arises from the pursuit of scale economies. It saves time and effort for one person to buy five drinks rather than for five people to buy their own.
Most of this enlightenment comes from a paper by Bradley Ruffle and Todd Kaplan, Here's something you never asked for, didn't know existed and can't easily obtain: A search model of gift giving.
That snappy title is a plug for their theory, which says gift giving makes sense in cases where the giver's knowledge of where to find something the recipient wants is greater than the recipient's own knowledge. Or if the giver is in a position to get it cheaper.
So the rule is that the giver gives a gift only when her "search costs" for the gift are lower than those of the recipient.
This emphasis on the hassle involved in finding suitable presents helps explain why, even though it's regarded as poor form to give money, parents are more likely to resort to money as their children get older. The parents' search costs rise as they become less certain what their kids would like, whereas the kids' search costs fall as they become more independent. This theory also helps explain why people who go on trips return with presents. Their gifts tend to be things that are dearer or harder to find at home. Even so, it's hard to believe the theory accounts for more than a fraction of gifts.
No, I prefer the theory that, because of the discipline many people impose on themselves to ensure they stay within their budgets and make ends meet, many of us have trouble allowing ourselves to indulge in the odd luxury purchase.
So we're pleased when friends and rellos brighten our lives by giving us little luxuries - from chocolates to perfume to jewellery - and when Christmas and birthdays give us a licence to spoil the kids.
I should tell you Ruffle has opined that the utility from gifts consists of not only the monetary cost and value of the gift, but also the emotions associated with it. He contended that "gift giving improves welfare if the giver's pride and the receiver's surprise from the gift plus the receiver's monetary valuation of the gift exceed the giver's monetary cost".
Predictably, however, the economics profession has shown little enthusiasm for this airy-fairy speculation and Ruffle himself seems to have abandoned it.
Really, it makes you wonder how someone so foolish manages to hold down his job.
huh. And I just had a conversation with the bf about the possibility of making stained glass for my niece considering the fact that: I have to buy a piece of glass in Madison; my car is acting funky and I'm not trusting it to start once I'm in Madison; I'm not sure of my upcoming schedule; and it's been quite cold, not the best situation for doing stained glass in the unheated garage.
December 24, 2003
Gift giving is irrational - unless, perhaps, you are hedging your bets, says Ross Gittins.
It's a little-known fact that the first economic rationalist was Ebenezer Scrooge. That's because economists simply can't understand why people would do something as stupid as giving presents at Christmas.
Conventional economics teaches that gift giving is irrational. The satisfaction or "utility" a person derives from consumption is determined by their personal preferences. But no one understands your preferences as well as you do.
So when I give up $50 worth of utility to buy a present for you, the chances are high that you'll value it at less than $50. If so, there's been a mutual loss of utility. The transaction has been inefficient and "welfare reducing", thus making it irrational. As an economist would put it, "unless a gift that costs the giver p dollars exactly matches the way in which the recipient would have spent the p dollars, the gift is suboptimal".
This astonishing intellectual breakthrough was first formulated in 1993 by Joel Waldfogel, an economics professor now at the University of Pennsylvania, in his seminal paper, The Deadweight Loss of Christmas.
The difference between what givers pay for presents and the value the recipients put on those presents is the loss being referred to and, since it's equivalent to tearing up banknotes, economists call it a "deadweight" loss.
It follows from this insight that, if people must persist with gift giving, they should at least minimise the loss by giving money rather than items in kind.
Trouble is, were families to assemble on Christmas morning for an equal exchange of $50 cheques, the pointlessness of the exercise would quickly become apparent.
But I must tell you that, since I first wrote about The Problem of Presents, research has continued apace - just in case there's some factor the economists have overlooked.
Typically, their main approach has been to search for some hidden consideration that makes the seeming irrational rational after all.
One possibility is that gifts may procure a source of insurance for the giver. Parents, for instance, may give gifts to their children in the hope the children will care for them in their old age. Adult children may give gifts to their elderly parents in the hope of being remembered at that last great gift giving with lawyers present. Then, money will do fine.
Another line of inquiry is that gifts, particularly inefficient ones, serve as costly signals of the giver's intention to invest in a future relationship. Or maybe gifts are exchanged to break down mistrust, permit co-operation and build relationships.
But such a model doesn't explain why people continue to give gifts in well-established relationships where there is little mistrust and dumb signalling isn't necessary.
The guru Waldfogel has recently refined his calculations on Christmas's deadweight cost, using a new survey to estimate that, per dollar spent, people value their own purchases 18 per cent more than they value items they receive as gifts. (Being a rigorous scientist, the prof has carefully excluded any allowance for the "sentimental value" of gifts.)
Waldfogel's case is bolstered by the news that, according to a US survey conducted by American Express, 28 per cent of respondents admitted to engaging in "gift recycling".
In the course of their inquiries, researchers have discovered that women are much more involved in gift giving than men. Their surveys suggest that women give Christmas gifts to more people than men (on average, 12.5 versus eight), start shopping for gifts earlier than men, devote more time to selecting the appropriate gift (2.4 hours per recipient versus 2.1 hours) and are more successful in finding a desirable gift (10 per cent of women's gifts were returned to the shop versus 16 per cent of men's).
Researchers have also stumbled on the revelation that the practice of shouting rounds of drinks arises from the pursuit of scale economies. It saves time and effort for one person to buy five drinks rather than for five people to buy their own.
Most of this enlightenment comes from a paper by Bradley Ruffle and Todd Kaplan, Here's something you never asked for, didn't know existed and can't easily obtain: A search model of gift giving.
That snappy title is a plug for their theory, which says gift giving makes sense in cases where the giver's knowledge of where to find something the recipient wants is greater than the recipient's own knowledge. Or if the giver is in a position to get it cheaper.
So the rule is that the giver gives a gift only when her "search costs" for the gift are lower than those of the recipient.
This emphasis on the hassle involved in finding suitable presents helps explain why, even though it's regarded as poor form to give money, parents are more likely to resort to money as their children get older. The parents' search costs rise as they become less certain what their kids would like, whereas the kids' search costs fall as they become more independent. This theory also helps explain why people who go on trips return with presents. Their gifts tend to be things that are dearer or harder to find at home. Even so, it's hard to believe the theory accounts for more than a fraction of gifts.
No, I prefer the theory that, because of the discipline many people impose on themselves to ensure they stay within their budgets and make ends meet, many of us have trouble allowing ourselves to indulge in the odd luxury purchase.
So we're pleased when friends and rellos brighten our lives by giving us little luxuries - from chocolates to perfume to jewellery - and when Christmas and birthdays give us a licence to spoil the kids.
I should tell you Ruffle has opined that the utility from gifts consists of not only the monetary cost and value of the gift, but also the emotions associated with it. He contended that "gift giving improves welfare if the giver's pride and the receiver's surprise from the gift plus the receiver's monetary valuation of the gift exceed the giver's monetary cost".
Predictably, however, the economics profession has shown little enthusiasm for this airy-fairy speculation and Ruffle himself seems to have abandoned it.
Really, it makes you wonder how someone so foolish manages to hold down his job.
huh. And I just had a conversation with the bf about the possibility of making stained glass for my niece considering the fact that: I have to buy a piece of glass in Madison; my car is acting funky and I'm not trusting it to start once I'm in Madison; I'm not sure of my upcoming schedule; and it's been quite cold, not the best situation for doing stained glass in the unheated garage.
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no subject
Date: 2005-12-05 06:38 am (UTC)As for the gifts given being valued, if it really bothers you, you can either buy gift certificates or try to buy something that you hope will be more special to them than it is to you. I used to really try for the second, but often I settle for the first.
no subject
Date: 2005-12-05 06:34 pm (UTC)no subject
Date: 2005-12-05 05:03 pm (UTC)I've been in a Christmas present quandry for some time. Last year, I had gifts for many of my friends. We had been giving gifts for years, and so I just continued with the tradition. But, when I passed the gifts out last year, a couple of people expressed their wish that we don't ever give gifts again. My sister met with the same kind of resistance from her friends this year. They do a Secret Santa exchange, and some of her friends said that they didn't have the $15 this year and others said that they "didn't have time" to get a present.
It's certainly cheaper not to give gifts, and I can see the economists point of view that the utility of the gift isn't always met. But...I don't know...isn't it nice to receive gifts? I have come to the point where giving and receiving gifts is about at the same level of enjoyment for me. I like thinking about someone and of what they would like to get. Or listening to what they say and picking out something that they want but just didn't fit the budget.
But I guess that not everyone feels that way...
no subject
Date: 2005-12-05 06:37 pm (UTC)