Economist's Christmas

What do you really want for the holidays? And how can you be sure you’re giving the perfect gift to someone else?

Of course, you want to get your loved ones something they will appreciate, but you face a knowledge problem: you don’t know everything about their wants and needs. You also have an incentive problem: oftentimes people aren’t quite as careful choosing a gift for others as they would be if buying something for themselves.

We’ve all received a present that we didn’t really want. When that happens, the value that we place on the gift can be less than its cost. According to research by economist Joel Waldfogel, gift givers spend an average of $50 on gifts that recipients only value at $40. Given that Americans spend around $100 billion on Christmas gifts, we’re wasting $18-20 billion every holiday season!

Is there a solution to this costly problem? Well, you can always give cold, hard cash! Many gift recipients would prefer it. But if you know the recipient’s tastes very well, you do have the opportunity to give them a non-cash present that they’ll love and that creates value by lowering their search costs.

There are, of course, occasions where the gift of money doesn’t make sense. Perhaps you want to signal that you care in a different way, or maybe there’s a custom you want to follow. You’ll just have to risk it in these situations.

Around the holidays, there’s also a spike in charitable giving. If you face knowledge and incentive problems in giving gifts to loved ones, you can imagine that these issues increase when you’re giving to someone you’ve never met. To combat this problem, some charities, such as GiveDirectly, give cash to people in need so that they spend charitable donations however meets their needs.

The efficiency of an economist’s Christmas may feel less warm and fuzzy, but the value creation is no less generous!

[mariamariamabouhamar]

The fact that I watched this video and studied the accompanied chapter just before Christmas break, makes me even happier! Happy holidays everyone!

[KorHyde]

This is why I love Marginal Revolution University.

[fishinawaterbottle]

"Now that's the holiday spirit. Both generous and efficient"

[kdljjw]

Economics in one lesson!
I think it is one of the best economics book with no math :)

[UnchainedEruption]

Henry Hazlitt and Homer Simpson? This really is a Christmas treat!

[walterdennisclark]

Tyler should have pulled out a different $20 bill and put the one from Alex in a different pocket.

[laurchikam]

i support the idea of donating money to charities instead of exchanging useless gifts but coming from a developing country myself I think that if you donate cash directly to people it can also be misused... there still has to be some control over the donated money.
but it's great there someone is finally speaking out about the problem of wasting money on Christmas gifts !

[ussgordoncaptain]

Gift giving is mostly signaling the thoughts that you like the person and not the monetary value of the items.

In some very real sense the actual git itself matters much less than the existence of the gift.

I suggest small things that seem thoughtful because you get 100% of the reason you are giving gifts with less waste in costs.

I admit actual cash gifts are better if you plan on giving a gift worth more than $5.

It's the same reason you buy a diamond ring, The ring is probably not worth it at all to buy, but the act of giving a diamond ring to someone is in some sense a good.

[anantmulchandani]

I just want to give this video a billion likes!!

[globalguy]

Efficient gift or efficient giving? Why not just ask folks what they want?

[ZacharyBittner]

gift giving can be awkward when you're poor. On one hand it's a positive because someone might gift you something useful that you could otherwise not afford and they do not expect a poor person to gift something back or they don't mind if the return gift is cheap. however, of you have trouble paying your rent and someone gives you a laptop. It's awkward to sell a gift you wanted to keep to pay for something you need.
in short, if you are giving a gift to someone who is poor. give them money.

[purikurix]

I think you forgot one feature: you can disseminate inspirations, new ideas through gifts. You may get inspired by a gift you would normally not buy by yourself. But otherwise good video👍🏻

[kylegene]

I would think that the value destruction by giving 'bad' gifts could turn into a value added incentive to lead us to seek to know the receiver of the gift more in-depth. That should lead to better, or more efficient, gift giving.

[captainjack]

Why don't people give more gifts of time, effort, and creativity, rather than material goods that people may or may not want? The (rather fun) challenge of gift-giving is to learn someone's preferences and try to create positive value.

[AustinBeeman]

Is the value created in the moment of buying the gift, not in the giving on the gift?

[Newprtoria]

Moreover, as the video's example illustrates, if the two of you gather for dinner and exchange a 10 dollar bill, why gathering in the first place? It would be more efficient to stay home with your own 10 dollar bill, or agree to meet for dinner but not exchange any money.
The problem with making cash the most efficient gift is that it does not help to explain why people gather and offer gifts to others. It somewhat assumes away the whole "problem".
So I would expect economics to be able to explain why people make gifts instead of giving cash.

[Newprtoria]

If gift giving was so inefficient, it would not have survived the evolution of traditions or customs over hundreds of years (from the time of kings to nowadays).
Sure, today people exchange or resell their gifts more than before, the marketplace is "better" organized, but still...

[mecheatgood]

Gift giving leads to death and destruction.

For example a poor man buys you a cup of coffee as a gift. Now the poor man wants from you food, shelter, clothing, and money. You decide that the coffee isn't worth all that the poor man demands. The poor man feels that you have a lot and gave you 80% of what he owns. Since you refuse to give the poor man what he demands he waits outside your home and punches and beats you because the poor man feels you robbed him of 80% of everything he owns. All because gift giving doesn't allow the terms of exhange to be said or be written in a contract.

Don't give gifts. Don't receive gifts.

[kimu]

This does not take into account the utility that is "created" from the activity of "giving a gift". This just means that american people spend 20 bilions in the activity of "giving gifts", they could spend as much in order to, for example, practice a sport.

[png]

From the Website: "Currently we spend $0.045 per dollar raised" - So you're really another competitor in MiddleMan market of collecting transaction fees albeit for perceived noble ends.