The gap between how much you paid for a gift, and how much the recipient values it, is called the "deadweight loss." (Henrik Sorensen / Getty Images)
The holiday gift shopping season is in full frantic gear now, with millions of Americans seeking just the perfect present for everyone on their list. Or, if not the perfect gift, at least something passable. Or if not something passable, maybe this is the year to give ... money? A donation to plant a tree or feed a child somewhere?
Gift dread — wracking your brain for a great gift idea — is as traditional as Christmas mistletoe or Hanukkah dreidels. Sometimes inspiration delivers. Sometimes you get ... another sweater.
Economists who study the mismatch of Christmas gift exchanges coined a cold term for this: "deadweight loss." Here's what that means: You give your spouse a $100 bracelet. But she doesn't value it at that amount. She'd have preferred a necklace, or maybe a ring. So the gap between what you paid for the gift, and how much the recipient values it, is called the deadweight loss.
Should you buy a gift for a new flame?
Situation: You just started dating someone and don't want to appear miserly (by not getting a gift) or desperate (by giving a gift). Advice: “You can invite them for a holiday lunch, dinner or drinks. This way it is a date idea and gift wrapped up in one,” says Audra Hamlin, founder of The Gift Firm.
In 2009, University of Minnesota economics professor Joel Waldfogel estimated the economic waste of ill-chosen gifts: "Given the $65 billion in U.S. holiday spending per year, that means we get $13 billion less in satisfaction than we would receive if we spent that money the usual way — carefully, on ourselves," he wrote in Slate. "Americans celebrate the holidays with an orgy of value destruction." We pity whoever got Waldfogel as their Secret Santa.
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By this reasoning, people should generally give cash or cash equivalents so that receivers know exactly how much the relationship is valued.
Here we tread into treacherous territory. Everyone knows the calculation that comes with a gift: How much should I spend? How much is enough to express my feelings for the recipient? Too much, and you feel foolish; too little and you risk rupturing a relationship.
But let's forget about dollars for a minute.
Think back to all the gifts that you remember. If you're like us, there aren't all that many. Not that you haven't had your share of sweaters, ties, toys, electronic gewgaws and — yes — socks. But the gifts that stick in memory aren't the most expensive, the most elaborate. Who hasn't framed a child's gift of artwork, for instance, to cherish? Wasn't that trip to swim with the beluga whales at the Shedd Aquarium a thrill, even years later? How about that battered pocket watch handed down from your grandfather's grandfather? Doesn't work? Doesn't matter.
We have friends who exchange few gifts because, they argue, they've got everything they need, and if they require something, they buy it themselves. That saves time and trouble at holiday times.
But it robs both potential giver and prospective receiver of the Eureka! moment when the perfect gift idea finally presents itself.
Warning: This doesn't always happen on cue before major holidays. It may not happen at all for several gift-giving occasions — birthdays, anniversaries — in a row. Your friends and family may or may not buy this explanation for a paucity of presents.
But here's the secret: One great gift, even once a year, overshadows a dozen uninspired presents. A study in the Journal of Personality and Social Psychology showed how people attach sentimental value to some gifts that outweighs the costs of the gifts and far outweighs the value of presents that they bought themselves during a holiday season. Researchers found that presents people bought for themselves quickly shed their power to bring happiness. That's called "hedonic adaptation." But many gifts did not. They held their value, often because of sentimental value.
The trick is to find those gifts that gather sentimental value.
From our experience, it helps to always be on the alert. Even if that birthday or special holiday is months away. Start thinking about it now. And remember: thought and effort doescount. A long investigative effort to track down a favorite childhood recipe for a cheese flaky from a long defunct bakery, for instance, may not have produced the recipe. But it did produce a detective tale of tasty tidbits — emails and phone calls and interviews — entertaining enough to earn the giver at least partial credit for ... trying.
Mercy — what gift that is.