Bah Humbug

November 29, 2009

In Scroogenomics, George Will and Joel Waldfogel, author of a book by the same name, sides with me on a long running Christmas time debate. 

Gifts that people buy for other people are usually poorly matched to the recipients’ preferences. What the recipients would willingly pay for gifts is usually less than what the givers paid. The measure of the inefficiency of allocating value by gift-giving is the difference between the yield of satisfaction per dollar spent on gifts and the yield per dollar spent on recipients’ own purchases.

Christmas etiquette involves composing one’s face to feign pleasure when unwrapping an unwelcome windfall — say, a sweater of an appalling color and a style that went out of style in the 1940s — and murmuring “Oh, you shouldn’t have” without revealing that you mean exactly that. Price of the sweater: $50. Value to recipient: $0. Actually, less than zero, considering the psychological cost of the forced smile.

I was disappointed that Will did not mention Milton and Rose Friedman’s Four Ways to Spend Money in his column.  The value destruction of gift was covered by the Friedmans long ago as Category II spending. 

The value created with the purchase of the gift isn’t the value perceived by the gift recipient.  Rather, it’s the psychological value gained by the gift giver for satisfying “its-the-thought-that counts.”  Which, is usually unfortunate for the gift recipient.

One of my long held theories is that most problems can be traced back to a breakdown in a feedback mechanism.  With gift giving, we rarely get true feedback from the recipients as to the value of the gift.  We get polite “thank you’s”.  The truth comes later when the recipient doesn’t use the gift, returns or exchanges the gift, sells the gift in a garage sale, donates it to charity, re-gifts it or simply gives it to someone else.  But, the truth rarely makes it back to the giver.

One way to fix the feedback loop is to establish a ground rule before the gift exchange that the gift recipients give honest opinions about the the gifts.  Another ground rule could be that the gift giver would have to take back the gifts that the recipients didn’t like.  I believe these two adjustments to feedback would very quickly convert most gift exchanges to exchanges of money, gift cards or gifts that have more value to the recipients.

Whenever I’ve had this discussion with my family, I start hearing Bah-Humbugs.  They mistake my desire for a better gift exchange, where recipients get more value out of the process (which I thought was the point), for lack of generosity. 

There are times when I think gift giving can provide more value to the recipient than even the cost of the gift.  I’ll write about those in the future.

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