From the perspective of economics, there is much about Christmas that is puzzling, especially the practice of gifting. Although most people don’t think too hard about the practice of gifting, especially from an economic point of view, the practice is odd: we buy gifts for other people in the hopes of getting something they really like, but often without asking them what they want directly. And no surprise, many gifts end up collecting dust in the closets of our friends and loved ones. Not to mention that many consider it to be rude to ask for the receipt of a poorly chosen to return it for the caser or something they would like more.
Gifting at Christmas looks wasteful. That’s the thesis of the book Scroogenomics: Why You Shouldn’t Buy Gifts for the Holidays. A similar point is made by Tyler Cowen and Alex Tabarrok about the wastefulness of gifting.
Whenever we receive a gift we don’t want, there’s a sense in which the gift costs more than it’s worth from the perspective of the recipient: if you paid twenty bucks for an ugly sweater as a gift, but I never use it, nor do I value it, then there’s a sense in which you wasted your twenty bucks—it could have done more good elsewhere.
Although not every gift is more costly than beneficial, the practice of gifting is highly inefficient when framed economically since we often lack the detailed knowledge of the gift recipient actually wants, and the incentive to get it just right.
But is that right? Perhaps not. In a recent paper, a couple economists argue that despite the apparent inefficiencies of gifting in the short term, there is value to gifting in a broader sense: though the gifts themselves may not be valued by the recipient, there is long-term social and practical value to the widespread practice of gifting in that it solves coordination and signaling problems:
[Gift] giving is dynamically efficient despite the possibility of generating short-term deadweight loss. A well-functioning market economy requires expanded social networks and trustworthiness among anonymous and quasi-anonymous exchange partners. Gifting allows individuals to signal trustworthiness by offering ‘burnt sacrifices’. Gifting practices that include a willingness to sacrifice via reciprocity norms, public visibility and ritual will tend to promote generalized trust.
And,
It is difficult to directly observe the trustworthiness of any given individual in society, but if there is common knowledge that the vast majority of people in society engage in gifting rituals, we can make simple probabilistic calculations that most people we meet will honor contracts or correct errors if they arise. That we continually emphasize the importance of giving and gracious receiving is an iterated reminder of how people unknown to us are not enemies seeking us harm but individuals who can work together with us to build a more prosperous and peaceful society.
Granted, when one gives a gift to a loved one, friend, or co-worker, the goal isn’t to sow the seeds of generalized trust and reciprocity; however, it may be that even bad or poorly chosen gifts, though statically wasteful, succeed in sowing the seeds of trust and generosity, paying off economically in the long haul. Admittedly, this is cold and detached way to think about gifting—as opposed to framing it as a practice that aims to surprise and delight the recipient—but in another sense gifting, even when missing the mark, is about spreading Christmas cheer. What could be more appropriate at Christmas than encouraging (indirectly) the feeling of generosity and reciprocity for others?
Happy Holidays! We return in early 2023!