So, Scrooge was right after all addresses the economics of gift giving:
Conventional economics teaches that gift giving is irrational. The satisfaction or “utility” a person derives from consumption is determined by their personal preferences. But no one understands your preferences as well as you do.So when I give up $50 worth of utility to buy a present for you, the chances are high that you’ll value it at less than $50. If so, there’s been a mutual loss of utility. The transaction has been inefficient and “welfare reducing”, thus making it irrational. As an economist would put it, “unless a gift that costs the giver p dollars exactly matches the way in which the recipient would have spent the p dollars, the gift is suboptimal”.
This astonishing intellectual breakthrough was first formulated in 1993 by Joel Waldfogel, an economics professor now at the University of Pennsylvania, in his seminal paper, The Deadweight Loss of Christmas.
You’ll excuse me if I don’t accept Waldfogel’s paper as the first time “this astonishing intellectual breakthrough was…formulated.” It’s still good stuff though:
The guru Waldfogel has recently refined his calculations on Christmas’s deadweight cost, using a new survey to estimate that, per dollar spent, people value their own purchases 18 per cent more than they value items they receive as gifts. (Being a rigorous scientist, the prof has carefully excluded any allowance for the “sentimental value” of gifts.)Waldfogel’s case is bolstered by the news that, according to a US survey conducted by American Express, 28 per cent of respondents admitted to engaging in “gift recycling”.
I agree with Bradley Ruffle and Todd Kaplan: gift giving makes sense in cases where the giver’s knowledge of where to find something the recipient wants is greater than the recipient’s own knowledge. Or if the giver is in a position to get it cheaper:
This emphasis on the hassle involved in finding suitable presents helps explain why, even though it’s regarded as poor form to give money, parents are more likely to resort to money as their children get older. The parents’ search costs rise as they become less certain what their kids would like, whereas the kids’ search costs fall as they become more independent. This theory also helps explain why people who go on trips return with presents. Their gifts tend to be things that are dearer or harder to find at home. Even so, it’s hard to believe the theory accounts for more than a fraction of gifts.