Bah Humbug Australia
Bah Humbug Australia - December 2015
Giving specific presents as holiday gifts is inefficient, because recipients could satisfy their preferences much better with cash.
To close off 2015 on a lighter note - in keeping with the 'silly season' - we polled the National Economic Panel on a subject that comes up around this time every year: the economics of gift-giving.
The question was identical to one used in 2013 by Chicago Booth's IGM Forum of Economic Experts, so we can compare our results to theirs. It is very heartening to see that the spirit of the Grinch is much less prevalent among our Australian respondents! Our poll returned a very strong majority result - 73% disagreed or strongly disagreed with the Grinchy proposition, whereas in the 2013 IGM poll, 54% disagreed or strongly disagreed.
Here are some links for you to explore the economics of Christmas further:
- Joel Waldfogel, 'The Deadweight Loss of Christmas'. American Economic Review, December 1993, vol 83, no 5.
- 'Is Santa a deadweight loss? Are all those Christmas gifts just a waste of resources?' (The Economist, 20 Dec 2001)
- Joel Waldfogel, Scroogenomics: Why You Shouldn't Buy Presents for the Holidays (Princeton University Press, 2009)
- 'Bah Humbug' poll in the US (Chicago Booth's IGM Economic Experts Panel, 17 Dec 2013)
- Derek Thompson, 'If economists wrote Christmas cards' (The Atlantic, 18 Dec 2013)
- Josh Barro, 'An Economist Goes Christmas Shopping' (The New York Times, 19 Dec 2014)
- John Quiggin, 'The Economist as Grinch' (blog post, 7 Dec 2015)
On behalf of the ESA-Monash Forum, we would like to thank the panellists for their participation in our inaugural year of the National Economic Panel polls.
We will continue to improve this platform and return with more polls (on more weighty topics) in the New Year.
Very best wishes for the festive season.
Tom Chan, Buly Cardak, Matthew Butlin & Edward Buckingham
|Disagree||8||My wife (a psychologist) and I have been invited to a X-mas party. I ask my wife whether we should take a bottle of wine, chocolates or flowers or whether we should maximise our host's utility by presenting her with $20. My wife replies that if I am going to embarrass her by behaving like a silly rational economist she won't come with me to the party.|
|Disagree||9||There is a literature on this - the quote is based on a very static perspective. In an evolutionary context, gift giving can have important implications for building trust and cooperation. Gifts can be useless but the institution of gift-giving may be very valuable.|
|Strongly disagree||10||As we approach the silly season, it is appropriate to have a silly question. Applying efficiency evaluation to gift giving demonstrates brilliantly the limits of the homo economics conception. Imposing restrictions on the recipient's use of purchasing power is inefficient in this conception. Human beings are more complex, they have emotions and emotional intelligence. Through choosing a gift, the giver demonstrates an understanding of the interests and needs of the recipient, thereby indicating regard, perhaps even love, for the recipient. A gift of purchasing power shows a low level of emotional engagement.|
|Disagree||8||That might be nice textbook economic theory. But it ignores the benefit that the buyer can get from putting thought and effort into buying a personal gift; and the benefit that the receiver gets from knowing that the buyer put in thought and effort. It also ignores the possibility that the buyer has a knowledge of available gifts that means that they can buy something that the receiver did not know existed.|
|Disagree||5||It is true that a person may wish they'd been given cash rather than say Barry Manilow's Greatest Hits, but a bigger part of the equation is that someone went to the trouble of finding you a gift, even if they didn't hit the nail on the head with this years offering. I would rather receive almost any gift than its cash equivalent even when the gift misses the mark. As such, I don't believe it is inefficient and can continue to enjoy the anticipation that next year the parcel under my tree will contain a Taylor Swift DVD.|
|Agree||7||This question oversimplifies. Specifically it does not come to grips with the all important interpersonal dimensions of gift giving and receiving, especially the key question of how much effort went into the choice of gifts for (say) a significant other. If the recipient's (significant other's) utility function also incorporated a perception of how much time, and insight went into the choice of gift then problem is more complex. Cash ranks high on flexibility but low on perceived effort, while a specific gift may not be the optimum gift but may rate highly on perceived consideration, effort and valuation of the recipient by the giver. The two dimensional problem is more challenging and real!|
|Disagree||8||I suspect my mother agrees with this statement, as she directs me to give her certain things or returns what I have chosen most years, but I disagree! Selecting gifts encourages you to think about those close to you, what they like and dislike, and may involve sharing something with them that has given you pleasure. Sometimes there are mismatches, but the benefits of this process and appreciation for the efforts made by others means that the utility of the gift-giving process exceeds the monetary value of the gifts exchanged.|
|Strongly disagree||9||Before we think about efficiency, we need to know what the objective function is. The question as stated implies that it is only the preferences of the receiver that matter. However, there is a lot of evidence that this is not the case and that givers in fact receive a "warm glow" from giving. Once that is taken into account, it is no longer clear that cash is more efficient.|
|Strongly disagree||9||In a conventional sense, recipients of benefits are better off with cash. However, in the case of 'gifts' there are at least two additional considerations. First, if recipients do not fully understand their own preferences (i.e. have imperfect knowledge) a friend may do a better job by providing a gift than we can do ourselves - some friends know us better than we know ourselves. Second, efficiency is about the overall welfare of society. In many cases giving a gift provides welfare to the giver so any efficiency analysis needs to account for the welfare that attends altruism. This hinges on the extent to which givers feel happier about giving a gift versus cash and will obviously be context specific.|
|Disagree||8||Statement assumes economic rationality and no consideration given to interpersonal relations and reactions to gift-giving nor behavioural biases.|
|Strongly disagree||10||Yes, if you believe that a Xmas present is about "transferring" something to someone else, then money would be the better present (at best you could do as well with your present as this person could do with money) but, presents are a signal that you care about the other person, the more personal a present is "picked"/the more effort you put into the process, the better the present ... once we talk about signalling and how important that is, we are ultimately wrong with "money as the best present".|
|The presumption built into the question is the sort of thing that gives economists a bad reputation in the rest of the community. Gift-giving is partly about satisfying the desires of the giver: and for the recipient, part of the pleasure is knowing that the giver has thought about the recipient and (ideally) about what might give the recipient some pleasure. For many recipients, that is more satisfying than the gift itself. Moreover, recipients quite often don't have strong preferences as to what they might do with an unexpected cash windfall. A gift could be something that opens up a new experience, something that cash could never do.|
Small gifts are about personal relationships. In this context cash is cold and contributes little to the personal relationship. A considerate small gift brings a wider pleasure to the recipient than just the gift itself. It may also confer pleasure on the giver.
If I were talking about big gifts, the situation could be different. If I were thinking of giving a substantial gift to a close family member, say a car, I would probably give cash instead leaving them free as to how they use the money.
Behind this rather trivial question lies a bigger question about the role of vouchers and personal budgets. Economists are very familiar with the arguments in favour of direct payments to the disadvantaged. It gives them choice, it enables them to spend the money as they think best suits their personal needs. It empowers the consumer and disempowers the service provider.
What I find interesting, however, is that voucher schemes often impose some limitations on how the money is to be spent.
|Disagree||6||This may be true for some people - even those whose preferences (like most people's) include things like being loved, understood, and cared for. However, a norm in our society is that the existence of these intangibles of love and understanding is outwardly proven partly via personalized material gift exchange on special occasions. For this reason, NOT giving a thoughtful gift to a loved one at the holidays would be seen by many people as a slight. A lesser slight can still be felt at the receipt of a simple money gift, which betrays no personal understanding of the recipient.|
|Agree||8||While generally agree that U($) ≥ U(a specific good or service), some gifters and recipients attach additional utility with the specific good or service transferred.|
|Strongly disagree||10||Gift giving is much less about the actual item than the signal that time has been invested into thinking what the other wants. That time-investment is the real gift and it is one of the marks of an emotional bond in our culture that the exchange of time is preferred over the exchange of money. To give your friend cash for X-mas is a great way to lose a friend.|
|Agree||8||Cash transfers are often seen to be more efficient and less paternalistic. |
So Cash as gifts would be better for adults, but for young children cash is not a gift! They like a gift they can hold.
|Strongly disagree||9||There are at least two reasons why giving gifts is efficient (in Anglo cultures). The first is because they are given by another and thus guilt free to the recipient. Guilt stops me spending $30 for the four pack of Trappist Beer. If you gave me $30 I would not buy the beer because of the guilt at such an indulgent purchase. But my guilt-free value exceeds $30. So if someone gives it to me (while I give them a gift of about the same value) then I get guilt-free value. And great beer.|
Second, giving is also about the giver. If I give my wife $500 ear rings for Christmas I will get a loving response. The response will be a bit different if I gave $500 cash! My act of spending time and choosing the ear rings is a signal from me to my wife that is not conveyed by money.
That said - be careful about culture. In some cultures giving money is not merely acceptable - it is expected.
|Disagree||6||Occasions such as Christmas are an excuse to give one another luxuries that our normal, prudent & boring selves choose to forego.|
The real question is whose needs are being satisfied. Is it the gift recipient or the gift giver? I suggest it is the gift giver. The gift giver creates or supports social cohesion by giving the gift.
Part of the act of giving a gift is to ask the recipient what they want for Christmas. This act opens an exchange between the giver and the recipient.
Amongst the responses that a recipient might give is that they wish a cash gift or voucher. In this case and only this case should the giver provide a cash gift.
The act of gift giving is an exchange that creates a social bond. Creating this social bond is of benefit to the giver.
|Strongly agree||10||Clearly a large amount of money (and time) is wasted on giving inappropriate gifts, so that gift giving is clearly inefficient in that sense. The underlying issue is cultural, with the Chinese for example feeling comfortable with the tradition of giving cash-filled red envelopes. For people who are close to me, and whose tastes I know, I feel comfortable giving gifts, but my nineteen year old niece has to do with a gift card ie cash.|
|Uncertain (neither agree nor disagree)||7||In theory, this is correct, ceteris paribus. But the ceteris are not paribus. If the donor feels the same way, she might expect cash of at least equivalent value from the recipient. If she receives same, joint economic welfare is unchanged in dollar terms. If everyone gave cash there would seem to be little point in "gift" giving save the utility it yields above the money values exchanged.|
|Disagree||5||From the perspective of a strict maximisation of the utility of the recipient, giving cash is the solution. However, giving gifts on special occasions is as much about the utility of the gift giver, as it is about that of the recipient. Moreover, the nature of the gift can be seen to be part of a localised institutional framework, or as a signal of a deeper communication, or can embody some other joint meaning. Therefore, the value of the transaction is more than simply the utility gained by the recipient.|
|Disagree||7||Economists are (in)famous for disliking the dead-weight loss of Christmas, and it is a legitimate concern. But gift giving can also serve the useful social purpose of influencing preferences.|
|Disagree||9||The statement makes the assumption that efficiency in the messy world of human relationships can readily be reduced to a question of physical resource allocation and that to attain this efficient outcome the giver and receiver gain no psychic value from the acts of selecting and of receiving the selected gift.|
I don't feel a numerical ranking is appropriate, but I offer this comment:
|Uncertain (neither agree nor disagree)||1||To respond in the festive spirit: I cannot admit a scenario in which a human agent is faced with such a choice at Christmas time and am therefore unable to answer the question. As every child knows, "we" do not give Christmas presents - Santa does. And it would, I think, be presumptuous of us to advise him. Rather, let us be grateful for what we receive. Merry Christmas to one and all!|
|Disagree||7||Giving gifts is not simply about the receiver enjoying the gift. The act may also signal how much the giver is engaged with the receiver. By finding something the receiver would like indicates the giver's attentiveness. However some non-cash gifts can be spectacularly unsuccessful. Cash may be better if the giver has little idea about the receiver's preferences. |
However some receivers may be offended at the impersonal nature of a cash gift. A voucher may be better received.
Further, gifting usually involves a reciprocal feature. With cash both given and received, the net payment becomes an issue. It would be zero in an equal relationship, and non-zero in an unequal one. Cash gifting can then become absurd.