Consumers are spoiled for choice, but many struggle to find the perfect item for their partner, their parents and their children. For some, the choice is so difficult that they prefer to take a very practical shortcut: offering a gift certificate or simply money. Ultimately, giving money at Christmas is the ideal solution to avoid making a mistake. And for the recipient, it is sometimes better to receive the equivalent of the gift in cash rather than ending up with an unfortunately useless present.
The dilemma between gift and money may seem trivial, but the subject has been studied in depth by several economists. According to some, the choice of gift versus donating money can cost society billions. In a publication for The Conversation, François Lévêque, professor of economics at Mines-ParisTech, explains why.
The economic fallacy of the perfect gift
To explain the impact of gifts on the economy, François Lévêque tells us the story of Joel Waldfogel, a young economist and assistant professor at Yale University in the 90s. He decided to calculate the “ deadweight loss”, that is to say the economic profit lost when one chooses to offer a gift rather than a sum of money. To do this, he asked his students to estimate the value of the gifts they received and what they would have been willing to pay to Buy them themselves. For example, One person responded that the sweatshirt found under the tree was worth €50 in the store, but that they would have only been willing to pay €43 if they had had to buy it themselves. On average, Waldfogel found that students underestimate the value of gifts by around 20%, and that it would have been better to give the student a €50 bill rather than make them “lose” €7. By extrapolating this data, he wanted to show that the exchange of gifts is responsible for a net economic loss of several billion dollars each season!
According to him, it seems that all the gifts given during the Christmas period represent a lot of time, effort and money wasted, and that it would be better to give money directly to the recipient or, even better, to make a donation to charity.
An even greater loss over the years
If Waldfogel’s reasoning were entirely correct (and we will see that it is not), the economic loss linked to the exchange of Christmas gifts would have reached records every year. In fact, toys are less expensive today per unit than in the 90s, but the budget allocated to their purchase has continued to increase. The difference between the perceived value of the gift and its Price is therefore greater, and the loss caused by exchanges is even higher.
A logical, but contested, reasoning
Waldfogel’s reasoning may seem cold and unsentimental, but it remains entirely logical: imagine that someone close to you spent €100 to buy you a new coat, but it is completely useless to you because you have one already one you love. To you, this coat would only be worth €10, whereas you could have spent the €100 on something that you would have really valued at its full value. In this example, there is effectively a deadweight loss of €90: a value which evaporated when the gift was given to the recipient.
Waldfogel’s account was widely criticized by other prominent economists. In a 2013 survey of a panel of expert economists at the University of Chicago’s Initiative on Global Markets, 54% disagreed or strongly disagreed. he idea that it was ineffective to give gifts during the holidays. One such expert, Richard Schmalensee of MIT, commented that “some gifts you would never have bought turn out to satisfy unsuspected preferences.” It is therefore possible that instead of a dead loss, the giving of well-chosen gifts is actually a real gain for the recipient.
Indeed, the vision of a rational consumer, capable of always optimizing his choices, has been called into question by research in behavioral economics. Furthermore, Waldfogel’s approach ignores the emotional and symbolic aspect of gifts. Reciprocity, the effort put into selecting the gift and the pleasure of the surprise effect are invaluable factors that he did not take into account.
Making better gifts would avoid this “dead loss”
Perhaps behind this extremely calculating study hides a simple message: what if we gave better gifts? Indeed, the more the perceived value of the gift remains below the amount actually spent, the greater the economic loss. To solve this problem, you should give smart gifts that provide as much value as possible to the person receiving it.
Despite economic theory, surveys show that the majority of people are satisfied with the gifts they receive. Monetary donations remain in the minority, often replaced by gift cards. This remains a safe bet which allows you to show the recipient that you know their tastes, without taking the risk of choosing a specific object.
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