The economics of Christmas gifts
I love Christmas. I really do. I recently realized that I have not celebrated Christmas since moving back to Turkey from the United States in 2005, and I decided, on a whim, to spend Christmas in London, where I am writing this column on Christmas Day.
But there is one Christmas tradition that seems awfully wrong to me: The custom of gift-giving. I don’t have a problem with receiving gifts; on the contrary, I enjoy it as much as any bloke. But I have amassed many useless gifts over the years at New Year’s Eve, which we Turks have conveniently substituted for Christmas – along with the lighted pine trees, Santa Claus and turkey, the whole nine yards.
I am hardly the first economist to have noticed this inefficiency. Surveying his students at Yale University about the gifts they had received at Christmas, economist Joel Waldfogel found that most gifts were poorly chosen compared to what they would have picked themselves. He calculated the waste attributed to such gifts to be 20 percent, on average, of the price of the gifts. Presents from friends and significant others turned out to be the most efficient, whereas gifts from members of the extended family were the least efficient and destroyed a third of their value.
After publishing his findings in an influential paper at the prestigious American Economic Review in Dec. 1993, right around the holiday season and as I was taking my first ever economics class at Yale, Waldfogel went on to do more work on the same theme and wrote the book “Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays,” which was published in 2009, again just in time for the gift-giving season.
Of course, this idea does not apply only to Christmas. In fact, subsequent studies by Waldfogel and others have established that people prefer gifts from wish lists, such as wedding registries, rather than surprise presents. Interestingly, economists Francesca Gino and Francis Flynn have found that there is one gift people appreciate even more than something from their wish lists: Money!
But a significant share of retail shopping is conducted during the holiday season, so some argue the economy would be hurt if there was no Christmas spending – or if people only exchanged money. That is actually a topic of debate among economists. Keynesians like Nobel-winner Paul Krugman hold this view, while classical economists like the late Milton Friedman would argue that Christmas production and spending would be fully replaced.
For next Christmas, even if you find handing out cash repulsive, ask your gift recipients what they would like. You can do even better by trying to “nudge” them to wishing something you might use as well: I managed to have my brother and his wife ask for a cat house for their ginger tabby. I take of care of Susam when they are away and have gotten quite used to him – so it was almost as if I was buying myself a present.
Anyway, I would like to wish you a belated Merry Christmas. I hope you got something that you can make use of, or at least “regift.” You’ll probably end up giving another person something they didn’t need, but you should encourage them to regift as well.