In less than a week’s time, it will all be over. However, the next few days may well be stressful for many people, as they ponder what to buy for all of those friends and family members.
This season has already been dubbed ‘Austerity Christmas’ by some commentators. Surveys published last week in Britain found that three in four people will not buy presents for at least some people they gave to in 2011 and that two-thirds of respondents are cutting their spending on Christmas gifts.
Is this necessarily a bad thing? After all, Christmas is supposed to be primarily about spending quality time with those close to you. Moreover, there is a well-established deadweight loss involved in buying Christmas presents. The numbers have been crunched by Professor Joel Waldfogel of the University of Minnesota. In his 2009 book, ‘Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays’, Prof. Waldfogel described Christmas as “an orgy of value destruction”. What he meant was that huge sums are wasted every year on gifts that recipients do not want. Prof. Waldfogel argues that money spent by the giver on a present would usually have been better spent by the recipient, since the recipient would have a better idea of his or her own needs and preferences than the person choosing the present. He said “if microeconomic theory teaches us anything, it is that people do best when they make choices for themselves”. On average, the value of a gift to the recipient is about 20 per cent lower than its cost.
However, perhaps Prof. Waldfogel is a latter-day Ebenezer Scrooge and the idea of not giving any presents is an extreme example of economists being prone to “Bah! Humbug!” outbursts. Therefore, if you are going to buy some presents, can economics tell us anything about the common errors to avoid? Indeed it can, courtesy of insights from behavioural economics. The economist’s guide may be summarised as follows (without going into the background of the particular behavioural biases concerned):
Don’t assume that other people will enjoy what you like yourself;
Don’t be too optimistic about how people will react to the present;
Do keep a rough running tab on how much you are spending. The ‘stocking fillers’ add up;
The act of giving the present is probably more important than its cost;
Rather than giving a present with a once-off “wow” factor, think about it being used on a regular basis.
Finally, there is another non-Christian tradition worth mentioning. The common practise in China is to give cash as presents. In Ireland, as in most of the Western world, it may be okay to give cash to a niece or nephew, but not among adult peers. Of course, vouchers or gift cards are quite similar to cash, perhaps without the stigma. You still leave the recipient to choose what they want.
Perhaps it is ironic that the Chinese give each other cash, which is an efficient way of allocating wealth, while making all of the gadgets and toys that we give each other, which leads to the deadweight loss mentioned by Prof. Waldfogel.
In any case, may I wish you a Happy (and economically efficient) Christmas!