Why You're Spending Too Much on Holiday Gifts (and How to Fix That)
We’re nearing that most wonderful time of the year. No, not the holiday season, but the season adjacent to it: when econ writers bring out Joel Waldfogel’s infamous 2001 paper, The Deadweight Loss of Christmas.
But giving gifts does bring us joy, despite what homo economicus might say. Fortunately, there are ways to balance our conflicting rational and emotional desires when it comes to gift-giving.
Deadweight loss and Scroogenomics
Joel Waldfogel’s (in)famous paper — and his aptly-titled follow-up book, Scroogenomics — details a microeconomic theory of gift-giving that highlights the overall loss in value that occurs when we participate in gift-giving culture.1
Think of the $50 scarf your aunt gifted you last year. While it was a nice gesture, you would have only paid, at most, $30 for the scarf if you had seen it in a store. A gift that costs your aunt $50 but only provides you with $30 of utility (i.e. warmth, happiness, and style) comes with a deadweight loss of $20. This sum went into the market without extracting any value for the purchaser or recipient.
The estimated costs of our mismatched giving is astronomical. Waldfogel posits that between a tenth and a third of all money spent during the holiday season becomes deadweight loss. In the U.S. alone, that’s tens of billions of lost value each winter.2
References
- Waldfogel, J. (1993). The Deadweight Loss of Christmas. The American Economic Review, Vol 83, No 5, 1328-1336.
- Probasco, J. (2022). Average Cost of American Holiday Spending. Investopedia, Dotdash Meredith Publishing. Retrieved from https://www.investopedia.com/financial-edge/1112/average-cost-of-an-american-christmas.aspx
- Weliver, D. (2019). Financial Gifts: The Etiquette of Giving and Receiving Money. Money Under 30, XLMedia. Retrieved from https://www.moneyunder30.com/financial-gifts-the-etiquette-of-giving-and-receiving-money
- Sherry, J. F. (1983). Gift Giving in Anthropological Perspective. Journal of Consumer Research, Vol 10, No 2, 157–168.
- Moss, J. (2021). Why the act of giving just makes you feel so darn good. CBC News, CBC-Radio Canada. Retrieved from https://www.cbc.ca/news/canada/kitchener-waterloo/jennifer-moss-happiness-well-being-columnist-giving-1.6279007
- Hyde, L. (1983). The Gift: Imagination and the Erotic Life of Property. New York: Random House.
- Swanson, A. (2015). Why cash is the worst gift. The Washington Post, Nash Holdings. Retrieved from https://www.washingtonpost.com/news/wonk/wp/2015/12/18/why-cash-is-the-worst-gift/
- Dunn, E., Aknin, L. and Norton, M. (2014). Prosocial Spending and Happiness: Using Money to Benefit Others Pays Off. Current Directions in Psychological Science, Vol. 23, No 1, 41–47.
- Mendoza, J. (2022). Check your wallet: Nearly half of Americans have $21 billion in unused gift cards, survey finds. USA Today, Gannett Satellite Information Network LLC. Retrieved from https://www.usatoday.com/story/money/2022/09/06/unused-gift-cards-21-billion/8005788001/
About the Authors
Sarah Chudleigh
Sarah Chudleigh is passionate about the accessible distribution of academic research. She has had the opportunity to practice this as an organizer of TEDx conferences, editor-in-chief of her undergraduate academic journal, and lead editor at the LSE Social Policy Blog. Sarah gained a deep appreciation for interdisciplinary research during her liberal arts degree at Quest University Canada, where she specialized in political decision-making. Her current graduate research at the London School of Economics and Political Science examines the impact of national values on motivations to privately sponsor refugees, a continuation of her interest in political analysis, identity, and migration policy. On weekends, you can find Sarah gardening at her local urban farm.
Katie MacIntosh
Katie MacIntosh is Lead Editor at The Decision Lab. She is interested in the intersection of behavioral science, culture, and new communication technologies. Before joining The Decision Lab, she contributed to research on the neurochemical bases of memory and the social psychology of the internet. An aspiring polyglot, she has studied a number of languages, including as an exchange student in Germany, Japan, and South Korea. Katie graduated from the University of Toronto with a Bachelor of Science in psychology and linguistics.
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