Joel Waldfogel’s Scroogenomics provides the academic justification for the campaign to cancel Christmas. The gist of his argument will be familiar to anyone who knows his now-notorious paper, The Deadweight Loss of Christmas (pdf). Quite simply, we are worse at buying for other people than we are at buying for ourselves. As a result, each dollar spent on someone else generates less value than a dollar we spend on ourselves - about 18 per cent, estimates Waldfogel. With Americans spending about $66bn a year on Christmas gifts, this implies an annual destruction of around $12bn of wealth - just under 0.1 per cent of GDP.
One reason for this destruction, says Waldfogel, is misaligned incentives. When we get some revolting jumper our response is not “why did you get me this crap?” but a smile and a thank you. As a result, bad gift givers don’t get the feedback that would cause them to improve their performance.
However, not all gifts do destroy value. Waldfogel estimates that around one-third of them actually increase value, with gifts from “significant others” being, on average, likely to do so; it is gifts from aunts and grand-parents that are most wasteful. This happens because partners know our tastes and sometimes have better knowledge than we do of the products out there, so they might buy us a book or CD that we come to love.
Herein, though, lies a problem with Waldfogel’s thesis. There might be another reason why gifts add value, which a narrow instrumentally rationalist perspective misses. Gifts aren’t just physical products, but ways of cementing social ties - of saying “I’m thinking of you”. For this reason, exchanges of gifts seem to be a widespread feature of all societies.
This ties in with a response that Sara Solnick and David Hemenway made (pdf) to Waldfogel’s original article. They found that gifts up the generations - from children to parents and grandparents - could add enormous value, in large part because of their function as love tokens.
It is, though, not just social capital that gifts create. They also create memory capital. The thing is, we quickly forget bad gifts but remember good ones forever. We all, I hope, fondly remember playing with some great pressies we got as children; for me it was Subbuteo - the floodlights were handy in power cuts. Would we have such happy memories if we’d received the more efficient gift of money?
For me, then, the value of Waldfogel’s little book is that it tests the limits of how far instrumental rationality can go. In many areas, it should go further than it does. But perhaps Christmas is a step too far.
One reason for this destruction, says Waldfogel, is misaligned incentives. When we get some revolting jumper our response is not “why did you get me this crap?” but a smile and a thank you. As a result, bad gift givers don’t get the feedback that would cause them to improve their performance.
However, not all gifts do destroy value. Waldfogel estimates that around one-third of them actually increase value, with gifts from “significant others” being, on average, likely to do so; it is gifts from aunts and grand-parents that are most wasteful. This happens because partners know our tastes and sometimes have better knowledge than we do of the products out there, so they might buy us a book or CD that we come to love.
Herein, though, lies a problem with Waldfogel’s thesis. There might be another reason why gifts add value, which a narrow instrumentally rationalist perspective misses. Gifts aren’t just physical products, but ways of cementing social ties - of saying “I’m thinking of you”. For this reason, exchanges of gifts seem to be a widespread feature of all societies.
This ties in with a response that Sara Solnick and David Hemenway made (pdf) to Waldfogel’s original article. They found that gifts up the generations - from children to parents and grandparents - could add enormous value, in large part because of their function as love tokens.
It is, though, not just social capital that gifts create. They also create memory capital. The thing is, we quickly forget bad gifts but remember good ones forever. We all, I hope, fondly remember playing with some great pressies we got as children; for me it was Subbuteo - the floodlights were handy in power cuts. Would we have such happy memories if we’d received the more efficient gift of money?
For me, then, the value of Waldfogel’s little book is that it tests the limits of how far instrumental rationality can go. In many areas, it should go further than it does. But perhaps Christmas is a step too far.
Indeed. It pays I think that barter is not dead, and that a feeling of well being, or of status is currently the item most obtained by barter.
Posted by: Pat | November 18, 2009 at 11:32 PM
"When we get some revolting jumper our response is not “why did you get me this crap?” but a smile and a thank you. As a result, bad gift givers don’t get the feedback that would cause them to improve their performance."
I dunno about that. In my wife's family at xmas you are positively encouraged to say if you don't like the gifts in order that you can take them back to the shop and get a refund. The 'feedback' makes the present-buying experience even less enjoyable though....
Posted by: Tom P | November 19, 2009 at 11:48 AM
Tom P has it in his last sentence: "the present giving experience". Presents convey value to the giver as well as the receiver. I may hate that rubbish Christmas jumper, but the little thank-you letter my mum made me send to Auntie was worth to her more than the money she paid for the jumper (or wool/time put into it more likely).
Posted by: Bruce | November 19, 2009 at 01:45 PM
This book isn't an example of "instrumental rationality" so much as it is an example of limited thought. "Instrumental rationality" can include many other benefits from gift giving that this book ignores. Parents may not want to give the gifts that their children want the most. Possibly the parents value making the kids better people so they give books or something else that will help the kid be a better person. This book would claim that is a deadweight loss because it only looks at how much these kids would pay for the present that the parent gave them. Arguing against Christmas gifts is one thing, but providing a dumb argument that doesn't deal with the logical responses is a waste of people's time. This is a really dumb book.
Posted by: Roger | November 21, 2009 at 07:43 PM