Asking economists about gift-giving misses the point

If we just bought ourselves stuff that would probably be more efficient but efficiency isn’t the point

It is the time of year for writers at publications that major on economics, finance and policy to trot out the economic case against gift giving.

These articles largely recycle the intellectual labour of the economist Joel Waldfogel. He has argued that:

As an economist, I see gift giving as a method of resource allocation that is entirely free of all of the good disciplines that we usually attribute to economic decision-making.

Normally we only make purchases for ourselves if we see something that’s worth more than the price. If we see something that costs $100, we buy it only if it’s worth at least $100. So normally, spending actually creates satisfaction. In fact, in dollar terms, normally the satisfaction associated with any amount of spending exceeds the amount of spending that occurs.

With gift giving, I’m buying something for someone else, so I don’t impose that discipline — I can’t, really. I don’t know what you want. I don’t know what you need. So I can spend $100 on you, and I might turn out to be unlucky and buy something that’s worth, well, in the worst case, nothing to you.

You can pick holes in this as an economic theory. For example, you might know less about my preferences than I do but you are also familiar with a different range of good and services than I am. For example, my secret santa from a few years ago knew fewer details of my love of Star Wars than I did. However, she did know that I loved Star Wars and that she could buy a coffee mug that looked like R2D2! Routinely making purchases that someone prefers to what they would likely be impossible but doing it once or twice a year feels doable. To be fair, Professor Waldfogel has used survey evidence to get empirical evidence to support his theory, so I am prepared to accept that the effect he highlights predominates over the effect I just highlighted.

However, that is only a knockdown argument if what we do indeed “see gift giving as a method of resource allocation.” That this is how Professor Waldfogel thinks in these terms is unsurprising. He is a microeconomist and that discipline is essentially geared towards assessing the costs and benefits of commercial transactions in a marketplace. The test it uses for that is whether the greatest quantity and quality of stuff  has been got into the right hands at the lowest cost. But this perspective only deals with half of the issue at hand. Gifts may come from the commercial realm but they do not stay there. You may buy a gift from a commercial entity – creating a conventional buyer and seller relationship – but that gift then moves out of the marketplace and into the more personal domain of families and friendships.

At this point, it starts making more sense to listen to anthropologists than economists, and they have built an entire subfield exploring gift giving and how it fits into a broader pattern of social relationships. This confirms what your intuition probably suggests, that we give gifts not only to get people more stuff they want but also to reinforce social bonds. It is, therefore, a mistake to think of the benefits of gift giving as the combined value of individual gifts minus their costs. Rather it is that plus the sense of reciprocity and solidarity created by the ritual of gift giving.

For example, Professor Waldfogel worries that the most wasteful gifts are those giving out of a sense of obligation to people we don’t have much contact with. But isn’t part of the point of giving them a gift to say that ‘despite our limited contacted I still feel a bond with you from which obligations arise’

To be fair to Professor Waldfogel, he does acknowledge the wider social context of gift giving and says that:

It can make both givers and recipients happy in ways that buying for oneself might not. So jumping to the conclusion that people should stop giving gifts is by itself is not necessarily warranted.

As that last sentence indicates, despite the fact that his articles often get given the headlines like “the economic argument for never giving another gift” he does not appear to actually believe that gift-giving is bad per se. Rather, he advocates doing it better by, for example, buying people you don’t know that well gift cards or making a donation to charity.

So popular economics writers this season give economists the gift of not reinforcing the stereotype of them as a bunch of Scrooges and stop writing these irritating articles.

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One thought on “Asking economists about gift-giving misses the point

  1. there’s some other odd bits here. For example, “In fact, in dollar terms, normally the satisfaction associated with any amount of spending exceeds the amount of spending that occurs.” This seems flatly incorrect: almost all my spending is on unavoidable costs, which I don’t necessarily think are worth the money nor find satisfying – housing being the obvious example.

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