“But It’s the Thought That Counts, Right?”
Last week, Freakonomics radio interviewed Steven Dubner about avoiding unwanted gifts and deadweight loss. He contends that when individuals give gifts just for the sake of giving gifts, they tend to destroy wealth and aggregate utility in the economy. Individuals are often focused more on the fact that they bought something (anything) for somebody else, and less on whether the gift will generate any real utility for the recipient. I bring this up because it’s a topic that we’ve previously discussed on Show-Me Daily. From the interview:
RYSSDAL: So anyway, it’s called “deadweight loss.” It’s that thing where my wife’s great-grandma buys me a sweater at $85 and to me it’s worth like $1.50. Because I don’t like it.
Most people enjoy finding gifts for others. I suspect that this negates a nonzero amount of dead-weight loss. However, this only occurs when the gift is well-fitted to the preferences of the recipient. Value is not added when you give your friend something that she hates. Additionally, she may have to endure the costs of storing and loathing the gift.
The act of searching for presents takes a lot of time and energy, and this increases their cost because individuals could be spending their time engaged in other activities. I’m one of those “clickers and gifters” described in the interview. Although I still experience high search costs, I find efficiency gains elsewhere (e.g., avoiding the mall).
Our staff recently did a Secret Santa exchange, and we instituted a $10 cap. I gave Jim a $10 bill. I find utility in the fact that I didn’t destroy any wealth in that transaction. I suspect that Jim finds utility in the fact that he may buy something that he actually wants.
