The Behavioral Economist's Guide to Buying Presents

Worried about what to buy for for your loved ones this holiday seasons? Here's what researchers have to say about what makes a good gift.  



Christmas cheer isn't cheap. Not in America. According to the National Retail Federation, U.S. shoppers spent more than $700 each on presents last holiday season -- about the same as a median month's rent.

Gift buying, as we all know, can be a fraught experience. Do you try and pick out that perfect shawl-neck sweater for your brother, or play it safe with a J. Crew gift card? Do you buy your college freshman cousin that Velvet Underground box set you loved so much at their age (and which they'll obviously learn to enjoy!), or go with the XBox game you know they really want?

These are painful, perennial questions. Thankfully, dorky academics have been investigating the nuances and norms of gift giving for decades. We've compiled a few of their findings into a Behavioral Economist's Guide to Gift Giving. Read up, and shop confidently.

What is the single best possible gift?

Cash money.

Money is the soundest gift for one simple reason: It guarantees that the recipient gets exactly what they want.

In 1993, economist Joel Waldfogel published a study with a title that only the Grinch could love: "The Deadweight Loss of Christmas." Deadweight loss is the term economists use to describe the gap between what we spend on something and what it's actually worth. Because people rarely know exactly what their friends and loved ones want, Waldfogel decided to ask a simple, slightly uncomfortable question: How much value do we waste every year by picking the wrong holiday gifts?

To find an answer, he surveyed a group of Yale undergraduates. He concluded that gift giving "destroys" between a tenth and a third of the value in what we buy. In other words, if you spend $100 on that Santa-red cardigan at Macy's, chances are whoever gets it will only value your gift between $70 and $90. Some groups had a better gift radar than others. Grandparents, aunts and uncles had the worst sense of what to buy. Friends and significant others had the best. But ultimately, cash was just more efficient.

So if you're feeling uncertainty, don't guess. Do everyone a favor and go with greenbacks. Or at least a gift card.

Gee, that seems impersonal. What if I don't want to give cash?

Focus on the message.

If you do decide to try and pick out something personal, stop and think: What do I want to say? Gifts send messages. We talk through them. And that's where much of their value is bundled -- for both the giver and the recipient. To quote California State Unviversity Professor Mary Finely Walfinbarger, "in primitive cultures, the gift was equally economic and symbolic. In societies with well-developed markets, it is hardly surprising that the gift has been at least partially stripped of its economic importance, leaving in a much more prominent position the symbolic value...."

As University of Chicago business professors Canice Prendergast and Lars Stole have argued, gifts also are used to demonstrate our "certainty" about potential mates. The more familiar we are about a person, the more easily we can try and pick something specific to their tastes. It's the difference between getting your boyfriend a bottle of Jack Daniels, or knowing his favorite bourbon is Elmer T. Lee. As the two researchers put it, "an individual who can show that he understands the preferences of his partner is likely to be a more desirable partner than one who has no idea what his partner wants or believes in."

Presented by

Jordan Weissmann is a senior associate editor at The Atlantic.

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