The truth about Christmas

One of the more useful things I learned at UVA was the economic inefficiency of gift giving. The way to understand this concept is if I am buying you a present, what would you rather have me give you - a book that I think you’d like, a gift card for the bookstore, or the monetary equivalent of the book (or card) that I was going to buy you? If you are rational, you will probably list your preferences as cash, followed by the gift card, with the book (hopefully with a receipt) rounding out the bottom of the list.

Whether you realize it or not, what you are trying to do is to minimize the inefficiency caused by receiving a gift that you don’t want and being locked in on a preference that I have chosen for you. The way the most popular professor at UVA explains every year to his intro to microeconomics class, when he and his wife were dating, he would offer to minimize her inefficiency by giving her the choice between going out on a date with him, and receiving the monetary equivalent of the dinner and movie that he was planning on taking them to. “Most of the times, she would choose to spend the evening with me … but other times she would choose the cash,” as he said to the laughter of students in the packed Chemistry Auditorium. Saturday’s Wall Street Journal had an excellent article on just how inefficient this gift giving is.

“Economists aren't suggesting Christmas be abolished. Still, in the latest Wall Street Journal forecasting survey, more than two of three economists opined that if Christmas ceased to exist as a holiday, consumers would either spend more on themselves or spread their gift purchases more evenly across other events such as birthdays. That, in the view of some academics, would put more goods into the hands of people who truly value them and improve social welfare as a result.”

The article goes on to quote a Wharton School of Business professor who estimates this “deadweight loss” to be around $10 billion annually. I can tell you from experience that me and my cousins conduct an annual Christmas “white elephant” and in the more than ten years that we have been doing this, I have yet to receive a present I want. Just yesterday BuckySis and I were trying to figure out where to put the soothing comfort pillow and the electric ice scraper that we got this year when we opened a closet door and found something else I got three years ago from the same “white elephant” event. Earlier this afternoon, on my way back from shopping malls I tried to use up the Starbucks gift card that I won earlier this year at a Kenan-Flagler trivia contest by running into a Starbucks and waiting on line for four minutes to buy a copy of the New York Times.

Next year, my “white elephant” will be a wrapped envelope containing cash and a copy of the Wall Street Journal article.