What We Might Not Want to Know About Gift Giving

The KFC firelog has returned.

Surely aware of our diminishing marginal utility, the people at KFC say it is available for a limited time only. But during that time, we can give our friends and family the gift of an aroma, We can give them a log that, when ablaze, will make their entire home smell like Kentucky Fried Chicken.

But Walmart does accompany the log with a warning:

Thinking entirely differently, Jerry Seinfeld gave Elaine a gift:

Where are we going? To what a gift is worth.

Holiday Spending

What We Spend

The National Retail Federation (NRF) estimates that each of us will be spending an average of $1,047.83 during these 2019 winter holidays:

What We Want

According to a survey taken October 1-10 by 7,782 adult consumers, more of us want a gift card than anything else:

Where We Shop

Many of us buy gifts online and, perhaps surprisingly, we still go to department stores:

What We Look For When We Shop

You can see the reason that retailers offer discounts:

What We Really Want

When deciding what to give, researchers from Indiana University tell us we shouldn’t care about the recipient’s spontaneous delight. Instead, how the person feels the next day should matter. 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. We do like practical gifts like warm socks and experiential presents like a massage. But we most appreciate what we will use.

Our Bottom Line: Deadweight Loss

In a legendary 1993 paper, Professor Joel Waldfogel suggested that holiday gift giving provides less of an economic boost (to the individual and the GDP) 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.

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. It could make us think twice about that $1047,83 that each of us will spend.

So, what is the deadweight loss from a $19 KFC firelog? Maybe $19.

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

Please note that analytic parts of this post were published in a past econlife. Our featured image is from Walmart.