by Tom Chivers
Friday, 11
December 2020

Your Christmas gifts are worth less than you think

by Tom Chivers
Christmas shopping looks slightly different this year. Credit: Getty

My cousin David is an economist, although I do not hold this against him. He mentioned the other day that he and his wife, also a social scientist, have an unusual approach to gift-giving, in that they don’t.

Or, rather, they don’t at Christmas, or birthdays, or anniversaries. Together, they worked out (he wrote up our conversation here) that “Given our average life expectancies (and marriage expectancy?) we are looking at well over 200 gifts” over the course of the marriage, and it’s quite hard to come up with that many thoughtful gifts. Instead, they do nice things together (meals out, day trips) and if — at any point of the year — they happen to see a gift that they think the other would like, they just buy it, and give it then. “It removes the stress involved with time constraints of birthdays, etc,” he says. “It also has the added bonus of being a surprise.”

It’s a well-established economic finding that gifts are (in one, quite narrow, way of working out value) a waste of money: that is, receivers of gifts consider them worth less money than was spent on them. People are less good at buying things for other people than for themselves, so they end up wasting money: a “deadweight loss” (or “welfare loss”) in economic terms.

That means, explains one paper, if “your grandma gives you a jumper worth $100, which you value only $30. The so-called welfare loss is $70, as your grandma spent $70 more than the jumper is worth to you”. The welfare loss is usually less than that (that paper cites other research estimating it at between 10% and 33%), but it’s real: if we all spent the money on ourselves, people would have more things that they actually want.

As David points out, gift-giving is also stressful. I’ve bought three quite large things for my wife for Christmas and her birthday (inconveniently, they fall at almost exactly the same time). But will she like them? I think so. But if I’ve completely misjudged it, she might be forgiven for wondering if I just don’t know her very well.

One response to that might be that you should give cash, instead, so the receiver can maximise their own utility by buying the thing they want. But as David says, that would be to act like a straw man of a bad economist, failing to take into account the more intangible benefits: the pleasant feeling that someone has tried to buy you a thoughtful present, that they went to effort, all the messy human stuff.

David and his wife’s system works brilliantly for them. It would work dreadfully for me and my wife, because we like the ritual aspect of Christmas gift-giving, and also because I would have to work out how to buy my own socks and slippers. It may be that we end up with somewhat less than economically optimal belongings, but from an overall utility-maximising point of view, it seems to work.

Or, to put it in the words of Scott Alexander:

Despite deadweight losses, despite the wrong days/  we think that this matters so much it outweighs/  all the falsehoods and problems; our model predicts/  it outweighs all those things by a factor of six!
- Scott Alexander, Should you have a merry Christmas?

Oh, and if you want to buy a Christmas present that won’t turn up until March, then David and I have written a book together about statistics in the media. So do go and buy that, deadweight loss be damned.

Join the discussion

  • After many years of receiving a load of things that I didn’t want or need, I put a stop to it.

    I asked all of my relatives to give money to their favourite charities instead of spending their money on stuff for me.

    It also proved effortless to persuade most of them to allow me to do exactly the same for them.

    It might not do the “wooly jumper’ industry any favours, but the warm feeling inside on Xmas day has never been better 🙂

  • We buy our own presents and wrap them (and I reimburse the children for their costs).

    This year I am getting a new hoover and some hoover bags, and some ramekin dishes to replace all the ones that have broken over the years. And my mum has got me some new slippers (which I’ve been wearing in since October). I am thrilled with my presents, especially the hoover as no-one else would dare buy it for me.

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