Undercover Economist

The economist’s guide to gift-giving

“There are worlds of money wasted, at this time of year, in getting things that nobody wants, and nobody cares for after they are got.” That was Harriet Beecher Stowe in 1850, reminding us that concerns over Christmas consumerism aren’t new.

 Also not new is Joel Waldfogel’s notorious research paper, The Deadweight Loss of Christmas, published 23 years ago in American Economic Review, a respected journal. Waldfogel, now a professor of economics at the University of Minnesota, expanded on his ideas in 2009 in a brief and witty book, Scroogenomics. He showed that gifts typically destroy value, in the sense that the giver had to pay more to buy the gift than the recipient would ever have been willing to spend on it. The total deadweight loss of Christmas in the US alone was $12bn.

Alas, what sounds like wisdom from Stowe tends to be mocked when published in an academic journal. But the problem that Waldfogel quantifies is quite real. If you give someone a jumper that doesn’t fit, a book they’ve already read or a box of chocolates when they’re on a diet, this is a waste of valuable resources. Fossil fuels have been burnt, tedious hours have been worked, trees have been felled, all to produce products that were unwanted. The same resources could have been devoted, instead, to goods that people actually do value.

Still, one cannot simply spit “Bah! Humbug!” and have done with Christmas gifts; people have their expectations. Nor can one simply dole out cash — at least, not to grown-ups. So, then, what to do? I asked Waldfogel himself, and several other social scientists, how they resolve the tension between the fact that Christmas gifts are a shameful waste and the fact that they are socially obligatory.

It’s not easy. Andrew Haldane, chief economist at the Bank of England, tells me: “I start out with the best of intentions — some small, inexpensive but deeply meaningful gifts that will stir the soul of the recipient — and then, at the last minute, end up panic-buying rather thoughtless, often expensive and largely unwanted stuff.” It is good to know that the Bank is in touch with how the rest of us act.

Dan Ariely, a psychologist at Duke University and author of behavioural economics books including Payoff, might encourage Haldane to forgive himself. Ariely rejects the basic Waldfogel premise. Economists, he told me, just don’t get it. They are seduced by their own training to be selfish and narrowly focused on efficiency. Giving gifts, says Ariely, is “inefficient economically but efficient socially”.

Well, perhaps. Certainly, if I give you a bruise-blue cardigan that you detest, we can all agree that this is no tragedy because it’s the thought that counts. But we can also agree that it would have been better if I had chosen a nicer cardigan.

One approach, independently advocated by Kimberley Scharf of the University of Warwick and Francesca Gino of Harvard Business School, is to buy only what has been explicitly requested.

This idea has some science behind it. Gino, the author of Sidetracked, has published research (with Stanford’s Frank Flynn) into how people feel about wishlists.

“Gift recipients prefer to receive items they’ve asked for, and they think givers who fulfil this ideal are more thoughtful,” says Gino. “Yet when we’re the one who is doing the giving, we fail to realise that people tend to prefer receiving what they told us they want.”

Basically, when we’re the giver, we scorn the wishlist and get creative, imagining that we’re smarter choosers than we really are; when we’re the receiver, we would simply be delighted to receive exactly what we asked for.

Gino herself looks for a wishlist whenever possible, and can recall several occasions when she was on the brink of buying an expensive and entirely inappropriate gift, only to be saved by having an honest conversation with the target of her generosity.

But what of poor Waldfogel himself? When the subtitle of your book is Why You Shouldn’t Buy Presents for the Holidays, you’re setting yourself up for a lifetime of giftless ostracism. But, says Waldfogel, he does still receive gifts, often “coffee, chocolate, or cognac . . . things I am known, by my friends and family, to use.”

He adds: “Honestly, how bad can any of these things turn out to be?”

Well, quite. Although my wife wouldn’t touch any of the three items — a reminder that there is no such thing as the all-purpose gift.

Waldfogel argues that it’s possible to do even better than the wishlist. The ideal, he says, is to find a gift that transcends what a person would be able to buy for themselves. And his answer is the gift of permission. “If I want something that’s a little extravagant, then I run it past my wife, who gives me permission to buy it.”

This does make a strange kind of sense. Last Christmas I bought my wife an expensive piece of camera kit — after carefully quizzing her to make sure I had exactly the right thing. We have a joint bank account, so what was I really giving her? Not money, and not effort. I was giving her my blessing.

Written for and first published in the Financial Times.

My new book “Messy” is now out and available online in the US and UK or in good bookshops everywhere.