It was snowing even in London this week. Surely now it’s time to get serious about Christmas — and who better to give the perfect yuletide advice than an economist? (I also plan to include the best ideas from psychology, and call them “behavioural economics”; this is a proven formula.)
Economists are much needed at this time of year since Christmas is, more than anything, a consumerist blowout. It has been for well over a century. Joel Waldfogel, economist and author of Scroogenomics (UK) (US), comments that “just as every generation imagines that it invented sex, every generation imagines that it invented the vulgar commercialisation of Christmas”. Prof Waldfogel has tracked the size of the spending boom in the US in December, compared with November and January. It has been sizeable at least since the 1930s and probably much longer than that. If anything, Christmas stands out less in the spending data than it did three generations ago.
As an economist, I have nothing against this rampant consumerism — but I do wonder whether there is a way to enjoy a better Christmas.
Here is my three-point plan.
Step one: beware the efficient presents hypothesis. This is a variant on the efficient markets hypothesis, which says (roughly) that there are no bargains to be had on the stock market because they’ve already been noticed and snapped up. Similarly, the efficient presents hypothesis says that all the most suitable gifts have already been purchased — typically by recipients who have decided to treat themselves.
I have already fallen foul of the efficient presents hypothesis this year; carefully selecting a pair of extra-warm socks in precisely the style and size my wife prefers, I was dismayed when a parcel containing a duplicate pair arrived at our house a few days later. She was one step ahead of me in picking her own presents. The efficient presents hypothesis is not always true, any more than the regular efficient markets hypothesis. It is nevertheless true often enough to take seriously.
Step two: adopt a passive gift-buyer strategy. Again, the parallel with investment should be clear. You can achieve excellent investment results simply by making regular payments into passive index tracker funds. This strategy is dull and unimaginative, leaving no room for flair or good judgment. Nevertheless it works — partly because good judgment is scarce and flair often counterproductive. Active managers are often unable to outperform the stock market by enough to justify their fees. Individual investors tend to trade too often, buy high and sell low. Regular passive investment may be boring but it avoids these traps.
The ultimate passive gift is cash. Just like tracker funds it is utterly unimaginative yet a surprisingly difficult benchmark to beat. Many active gift-buyers swear they can get more than £50-worth of joy out of a £50 present, but Prof Waldfogel has good evidence that most of them fall well short. Gift-givers, like stock pickers, tend to overrate their abilities. (At least gift-givers have an excuse: they receive no feedback. Nobody is going to tell you that they hate the present you bought for them, but if your stock portfolio crashes it is hard not to notice.)
Since giving cash is often socially unacceptable, there is another passive approach that works well: find a wishlist, or just ask the recipient what they would like. Just as passive investment in index funds robs the stockpicking game of its daring and mystique, simply consulting a list seems robotic and joyless. But — as Francis Flynn of Stanford and Francesca Gino of Harvard have found — it is rarely perceived that way by recipients. While gift-givers hesitate to fall back on a wish list, recipients prefer items they have indicated that they actually want. They still think of the present purchaser as perfectly thoughtful: after all, someone took the trouble to find out what you wanted.
Step three: give the gift of time and attention. With all the effort you’ve saved ordering gifts from wish lists or simply writing cheques, see friends and enjoy the rituals of Christmas. Fresh from her wishlist research, Prof Gino has been part of a team studying the way family rituals influence our experience of seasonal festivities. Whether the rituals are secular or sacred, they are correlated with liking your family, feeling more satisfied with life and paying closer attention to your experiences. Exactly what causes what is not clear, but the idea that a good Christmas tradition brings people together is a sensible one. Too often, we lack the time because we are spending countless hours running around shops buying things that nobody will ever tell you they hated, already owned or both.
One could do worse than the reformed Ebenezer Scrooge, who, Dickens tells us, “knew how to keep Christmas well, if any man alive possessed the knowledge”. On Christmas morning the only physical gift he gives is a prize turkey, having been assured on good ghostly authority that it is much needed. Other than that, he gives time and money, notably a pay rise for Bob Cratchit.
Money! That’s the Christmas spirit. God bless us, every one!
Written for and first published in the Financial Times on 15 December 2017.