Why We Give The Wrong Gifts

The National Retail Federation (NRF) estimates that each of us will be spending an average of $967.13 during these winter holidays:

But we might not be getting friends and family what they want. And that could be a problem.

The Holiday Spending Boost

In a legendary 1993 paper, Professor Joel Waldfogel suggested that holiday gift giving provides less of an economic boost than we expect. The reason is the recipient’s dissatisfaction. A mismatch between what the giver expected and how the receiver felt could diminish the gift’s value by as much as one third.

Below, Elaine is disappointed with Jerry’s gift but not Kramer’s in this Seinfeld excerpt:

According to the NRF, we do not quite agree with Seinfeld’s Elaine. Our top preference is gift cards and certificates:

However, we might not get what we want because clothing or clothing accessories top more givers’ lists. Also, you can see the mismatch between givers and receivers for “Gifts of Experience.”

The Gifts We Want

According to a study from Indiana University, when deciding what to give, we shouldn’t care about the spontaneous delight expressed by someone opening a present. The key is how the person feels the next day. Preferring what they noted on a registry or list, people like to get what they request. They also usually are not really pleased with that $250 water buffalo you gave in their name to a family in Cambodia. In fact, an expensive gift will not necessarily be more welcome than something cheaper. Instead, we like practical gifts like warm socks and experiential presents like a massage. We most appreciate what we will use.

Our Bottom Line: Deadweight Loss

When a gift is a mismatch between between the giver and receiver, we wind up with deadweight loss. That loss is the difference between the price of the item and its value to the recipient. Never worn, a sweater that cost $75, could be worth $25 to its owner. The deadweight loss? $50.

So, if you have not yet completed this year’s shopping (and many of us have not):

It’s okay to get the gift card.

My sources and more: Dry but interesting, the 1993 Waldfogel paper describes the holidays’ deadweight loss.  Then, Ana Swanson had the perfect complement in last year’s Washington Post shopping article and its link to the Carnegie Mellon/Indiana research. Finally, the National Retail Federation provided the last pieces of the puzzle through their discussion of the holidays and retail sales.

Please note that several sentences in this post were published in a past econlife.