First, a holiday favorite from last year:
(Fun fact: the other kid in the video will be helping me out at the AEA meeting in Chicago in a couple of weeks, so come say hi!) Second, my mom made a new version of an xmas tree skirt:
See? Economists can be festive even though we recognize the potential inefficiency of gift giving. (I will admit that it probably doesn’t help our grinchey image that we write books entitled Scroogenomics.) The argument against gift giving, as explained by Joel Waldfogel, the author of Scroogenomics, goes something like this:
My objection is that the holiday spending doesn’t result in very much satisfaction. Normally if I spend $50 on myself, I’ll only buy something if it’s worth at least $50 to me. But if you buy something for me, and you spend $50, since you don’t know what I like, and you don’t know what I have, you may buy something I wouldn’t pay anything for. And so you could turn the real resources required to make things into something of no value to me. And that would destroy value.
Hm. I suppose that is why my mom informed me that she was sending a big box of economic inefficiency my way. (How did she know that I had asked Santa for deadweight loss for xmas?) So do economists have a right idea with this gift thing, and is the rest of the world just doing life wrong? Maybe not. It *is* theoretically possible to get a gift for someone that the person values more than it cost, so not every gift is inefficient. (This is particularly true when the gift giver finds an item that the receiver doesn’t know exists or doesn’t have access to, for example.) Furthermore, behavioral researchers such as Mike Norton has found that spending on others has more of an impact on happiness than spending on one’s self:
We conducted a number of studies—from national surveys to a field study in which we examined how the manner in which employees at a Boston-based company spent a profit-sharing bonus impacted their long-term happiness—in which we showed that money can buy happiness, when people spend that money prosocially on others (giving gifts to friends, donating to charities) rather than on themselves (buying flat-screen televisions).
Norton and his colleagues even find similar evidence in an experimental setting when they direct people to spend small amounts of money either on themselves or on others. So don’t return that snuggie that you got for your roommate just yet…but, if you are going to get gifts for people, at least abide by my Economist’s Guide to Holiday Gift Giving. Or you could take advice from Matt Yglesias, who focuses a bit more on the potential redistributive benefits of gifts. Either way, happy holidays!