Friday, December 16, 2011

Holiday Shopping? Consider the Most Economically Efficient Gift of All: Cash, to Avoid Deadweight Loss




"I am not sure why people give each other store-bought gifts instead of cash, which is never the wrong size or color. Some say that we give gifts because it shows that we took the time to shop. But we could accomplish the same thing by giving the cash value of our shopping time, showing that we took the time to earn the money."

In the 1993 American Economic Review article "The Deadweight Loss of Christmas," Yale economist Joel Waldfogel estimated that holiday gift-giving destroys between 10% and a third of the value of gifts.  Reason? The best the gift-giver can do is to duplicate the choice the gift-recipient would have made on his or her own with the cash-equivalent of the gift.  In reality, it's much more likely that the recipient will be worse off with the gift chosen by the gift-giver than if the recipient had made his or her own choice with the cash.

In the Seinfeld episode above, Elaine takes the standard view and doesn't appreciate Jerry's gift of cash, even though he took the time to gift-wrap the cash.  

18 Comments:

At 12/17/2011 12:12 AM, Blogger Buce said...

An economist's way of misunderstanding what is at stake. Of course is correct that I almost by definition prefer my own intuition as to my taste over someone else's guess. But the point of the gift is precisely not to test the intuition of the donee; it is to test the empathy or attentiveness of /the donor/. If the donor gives me a doilies when I was hoping for placemats--well, it's not quite right, but s/he certainly was trying. If s/he gives shotgun shells, the chances are s/he's not paying attention.

A gift of cash says "I really don't give a rat's patootie what you want; here, take my money and solve your own problem."

 
At 12/17/2011 7:12 AM, Blogger Larry G said...

so everyone sits down and gives each other a cash card and the only issue is who got shortchanged?

and then everyone gets up and returns to whatever they were doing before - probably everyone staring at FB on their smartphone?

Methinks you miss the entire point of Christmas which is to get something for someone that the might now get for themselves...but in order to do that well.. you have to know them well...

that's why IMHO gifts should only be exchanged between close friends and family and not everyone and their dog because then you do give and receive "crap".

 
At 12/17/2011 7:29 AM, OpenID moneyjihad said...

And time is more valuable than money, so give out calendars for Christmas.

 
At 12/17/2011 8:06 AM, Blogger FactsAreFriendly said...

This verifies Hayek's concept that no one person or group can figure out what other people will want or need over time - even a highly credentialed economist who, with impeccable and emotionally sterile logic concludes that cash is a good gift.

What wonderfully varied lives we all lead!

Merry Christmas!

Dwight Oglesby

 
At 12/17/2011 11:08 AM, Blogger Buddy R Pacifico said...

" Yale economist Joel Waldfogel estimated that holiday gift-giving destroys between 10% and a third of the value of gifts."

What if someone had the foresight to give you a fruitcake in 2001? You probably have not eaten it yet, but the value has probably more than doubled.

So, the ten dollar gift you received now costs at least twenty bucks. Re-gift that fruitcake this year, thus giving the recipient greater value than cash.

It's the thought that counts, is it not?

 
At 12/17/2011 2:00 PM, Blogger Andy said...

There are many benefits to non-monetary gifts, e.g.:
- Surprise (they got you something you didn't expect or even know about)
- Happiness that they guessed exactly what you wanted (of course this works the other way)

 
At 12/18/2011 4:53 AM, Blogger Jet Beagle said...

Buce: "An economist's way of misunderstanding what is at stake."

Exactly.

Is Steven Landsburg serious? Is this an illustration of how out of touch with the rest of humanity is the typical economist?

 
At 12/18/2011 8:15 AM, Blogger Hydra said...

Anyone see the article that claims statistical evidence that economists are predisposed to be grinches?

 
At 12/18/2011 9:14 AM, Blogger juandos said...

Cash makes sense to me...

After all how much of your irretrievable time worth to you and to the person you gave a fine gift to but said person can't use it and has to return it?

 
At 12/18/2011 4:05 PM, Blogger Jet Beagle said...

juandos,

Please re-read Buce's fine comment above. Buce understands that the whole purpose of a gift is to demonstrate to the recipient that he or she is worthy of that precious irretrievable time.

 
At 12/18/2011 7:45 PM, Blogger juandos said...

"Please re-read Buce's fine comment above. Buce understands that the whole purpose of a gift is to demonstrate to the recipient that he or she is worthy of that precious irretrievable time"...

Which is of course TOTAL baloney jet but I didn't want (in the spirit of the season of course come right out and say so but you forced it...

 
At 12/18/2011 9:27 PM, Blogger sethstorm said...

Why not gold or silver?

 
At 12/19/2011 4:17 AM, Blogger Jet Beagle said...

juandos, how is what Buce wrote "total baloney"? Do you believe that recipients of gifts do not appreciate that the giver spent some of their time in finding a gift?

 
At 12/19/2011 3:06 PM, Blogger juandos said...

" Do you believe that recipients of gifts do not appreciate that the giver spent some of their time in finding a gift?"...

No jet I don't...

 
At 12/19/2011 3:32 PM, Blogger Larry G said...

well.. I only give gifts to those who do....appreciate...

and in terms of sitting around the Christmas tree exchanging gift cards... and nothing else...

well.. for me.. it loses a lot.

 
At 12/19/2011 3:37 PM, Blogger Larry G said...

and Morg - just FYI

I expect to LEARN from blogs like CD but I reserve the right to decide what to accept ...and sometimes what you learn is others views and maybe this sounds weird but I want to know and benefit from knowing how others think....

sometimes.. we find compromises when we better understand how others think...

 
At 12/20/2011 10:08 AM, Blogger juandos said...

"and in terms of sitting around the Christmas tree exchanging gift cards... and nothing else...

well.. for me.. it loses a lot
"...

Well next time try cash larry g...

Nothing makes someone light up when you hand them a C-note or two...

 
At 12/20/2011 5:35 PM, Blogger Ron H. said...

juandos: "Nothing makes someone light up when you hand them a C-note or two..."

Yeah, I know the girlfriend I normally rent sure likes it.

 

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