In 1993, the economist Joel Waldfogel published a famous article in the American Economic Review called “The Deadweight Loss of Christmas.” The article focuses on the “microeconomic aspect of gift giving ... that many gifts may be mismatched with the recipients’ preferences.” That mismatch creates a “deadweight loss,” in that the gifts are valued by the recipient below what the giver paid for them. Waldfogel famously found that “holiday gift-giving destroys between 10 percent and a third of the value of gifts.”[1] Based on data showing that holiday gift expenditures in 1992 totaled $38 billion, Waldfogel calculated that the deadweight loss of holiday gift giving in 1992 was between $4 million and $13 billion. Lest you have any doubt how Waldfogel feels about holiday gift giving, consider that he was still beating this drum in 2009, when he published Scroogenomics, whose subtitle says it all: “Why You Shouldn’t Buy Presents for the Holidays.”
Which is exactly where we ended up last year, and we certainly weren’t alone.[2] But it wasn’t terribly satisfying and Mom and I both missed the gift exchange we’d done all of our, and your, lives, which led to my collecting scientific articles over the past year and trying to figure out a better way to restore some level of gift giving to the holidays.
When I read Waldfogel’s article more carefully, I noted that he specifically excluded the “sentimental value” of gifts when calculating the deadweight loss. Other reading confirmed that Waldfogel’s “straight-up economic analysis overlooks the critical role that gifts can play in strengthening relationships” among family members and other loved ones.”[3] And more recent research demonstrates that “family rituals improve the holidays because they amplify family closeness and involvement in the experience.”[4] That proved to be true across religious and secular holidays (Christmas, New Year’s, and Easter). Happily for UaKS and yours truly, “family dinner” was the number one ritual at both New Year’s (49%) and Easter (36%), and the number two ritual at Christmas (34%). The only ritual that family dinner came in behind was—you guessed it—opening presents at Christmas (39%).
Notably, however, while another study confirmed that family experiences (and spiritual ones if you’re so inclined) increase happiness at the holidays, “lower well-being occurred when spending money and receiving gifts predominated.”[5] In other words, “the materialistic aspects of modern Christmas celebrations may undermine well-being, while family and spiritual activities may help people to feel more satisfied.”
In the end, that’s what led to last year’s no-gift Christmas experiment: the crass materialism of a U.S. Christmas. But we didn’t factor in the closeness created by the ritual of opening presents with family members on and around Christmas morning. So, the key is to find the right balance between a positive family holiday experience with some gift-giving without crossing the boundary into an excess focus on spending and materialism. Here are some ideas I drew from the literature:
Which is exactly where we ended up last year, and we certainly weren’t alone.[2] But it wasn’t terribly satisfying and Mom and I both missed the gift exchange we’d done all of our, and your, lives, which led to my collecting scientific articles over the past year and trying to figure out a better way to restore some level of gift giving to the holidays.
When I read Waldfogel’s article more carefully, I noted that he specifically excluded the “sentimental value” of gifts when calculating the deadweight loss. Other reading confirmed that Waldfogel’s “straight-up economic analysis overlooks the critical role that gifts can play in strengthening relationships” among family members and other loved ones.”[3] And more recent research demonstrates that “family rituals improve the holidays because they amplify family closeness and involvement in the experience.”[4] That proved to be true across religious and secular holidays (Christmas, New Year’s, and Easter). Happily for UaKS and yours truly, “family dinner” was the number one ritual at both New Year’s (49%) and Easter (36%), and the number two ritual at Christmas (34%). The only ritual that family dinner came in behind was—you guessed it—opening presents at Christmas (39%).
Notably, however, while another study confirmed that family experiences (and spiritual ones if you’re so inclined) increase happiness at the holidays, “lower well-being occurred when spending money and receiving gifts predominated.”[5] In other words, “the materialistic aspects of modern Christmas celebrations may undermine well-being, while family and spiritual activities may help people to feel more satisfied.”
In the end, that’s what led to last year’s no-gift Christmas experiment: the crass materialism of a U.S. Christmas. But we didn’t factor in the closeness created by the ritual of opening presents with family members on and around Christmas morning. So, the key is to find the right balance between a positive family holiday experience with some gift-giving without crossing the boundary into an excess focus on spending and materialism. Here are some ideas I drew from the literature:
1. Keep it small
Based on the exclusion of “sentimental value” from Waldfogel’s research, Tim Harford, another economist, suggests bearing in mind that “there is an emotional side to our annual ritual” of exchanging presents.[6] He says that we can “make sure that the sentimental benefits outweigh the cost by giving smaller presents but taking more care over them.” As it turns out, that’s a lot easier said than done.[7] But one thing I’m trying this year is that I’ve kept a notebook filled with gift ideas that I wrote down as they occurred to me during the past year, often after a family member mentioned something they were interested in. In other words, I’ve tried to take hints, even if they weren’t intentionally given.[8] Ask questions, be a good listener. (That will get you far in life, even apart from giving better gifts; as Mister Rogers said, “listening is where love begins.”)[9]
2. Give them what they want
A much more straightforward method of increasing satisfaction in the exchange of gifts is just to give the recipient exactly what they want. The science shows that “gift recipients are more appreciative of gifts they explicitly request than those they do not.”[10] That study found that recipients think getting gifts from their list is actually more thoughtful and considerate than a giver who tries to go off script and come up with something unique that the recipient "didn’t know they wanted," which is generally a losing strategy.[11]
Interestingly, there is one exception to this rule, which is that people actually appreciate receiving money even more than a gift they explicitly requested.[12] Harford says this is also a good strategy “[i]f you must give to those whose tastes you do not understand.”[13] Even that scrooge Waldfogel says that a gift card—essentially the equivalent of money, though a little more random in that you have to pick the right one—is a good substitute for a bad gift, which is the real drag on the economy.[14]
3. Focus on the recipient’s ownership of the gift, not the moment of gift exchange
If you’re uncomfortable getting a list or giving money or a gift card, there’s one overarching strategy that you can use to try and give better presents: “givers should choose gifts based on how valuable they will be to the recipient throughout his or her ownership of the gift, rather than how good a gift will seem when the recipient opens it.”[15] This avoids the giver’s common mistake in focusing “primarily on gift exchange rather than gift ownership,” which causes the giver to give presents that he or she thinks will dazzle the recipient on opening them. Note that this does not mean that a gift has to be tangible and have value over its useful life; in fact, recipients actually tend to derive more happiness from experiential gifts (like UVA basketball tickets or a dinner out), which have the added benefit of anticipating the event as well as experiencing it.[16]
That’s finally it. Kudos if you made it this far into a 1,000-word post on gift giving from a college psych major. (And you’re not even getting a recipe at the end—Psych indeed! 🤣) There may or may not be a pop quiz on this material the next time I see each of you. Let me know if you try any of the strategies and how they work out for you.[17]
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[1] At the more efficient end of the scale were gifts given by friends (an impressive 98.8% average yield), significant others (91.7%), and nuclear family members (parents and siblings, both above 86%), while extended family members fared significantly worse (aunts, uncles, and grandparents all below 65%). Waldfogel summarized that “[t]he fraction of gifts lost increases with the social distance between giver and recipient.”
[2] See, e.g., Joe Pinsker, “The Joy of No-Gift Christmas,” The Atlantic (Dec. 13, 2018).
[3] Elizabeth Dunn & Michael Norton, Happy Money (2013).
[4] Sezer et al., “Family Rituals Improve the Holidays,” Journal of the Association for Consumer Research, 1(4) (2016).
[5] Kasser & Sheldon, “What Makes for a Merry Christmas?” Journal of Happiness Studies, 3 (2002).
[6] Tim Harford, “The Deadweight Loss of Christmas” (Dec. 20, 2003).
[7] Lerouge & Warlop, “Why It Is So Hard to Predict Our Partner’s Product Preferences: The Effect of Target Familiarity on Prediction Accuracy,” Journal of Consumer Research, 33 (2006).
[8] See Nicholas Epley, Mindwise (2014). You can also listen to Epley talking about this idea on the “Happier Christmas” episode of Dr. Laurie Santos’s Happiness Lab podcast.
[9] Fred Rogers, The World According to Mister Rogers (2003).
[10] Gino & Flynn, “Give Them What They Want: The Benefits of Explicitness in Gift Exchange,” Journal of Experimental Social Psychology, 47(5) (2011).
[11] See Josh Barro, “An Economist Goes Christmas Shopping,” The New York Times (Dec. 19, 2014).
[12] Gino & Flynn, note 10.
[13] Harford, note 6.
[14] Barro, note 11.
[15] Galak et al., “Why Certain Gifts Are Great to Give But Not to Get: A Framework for Understanding Errors in Gift Giving,” Current Directions in Psychological Science, 25(6) (2016).
[16] See, e.g., Goodman & Lim, “When Consumers Prefer to Give Material Gifts Instead of Experiences: The Role of Social Distance,” Journal of Consumer Research, 45(2) (2018). Keep this in mind when you’re buying yourself something too. See Dunn & Norton, note 3 (ch. 1); Nicolao et al., “Happiness for Sale: Do Experiential Purchases Make Consumers Happier than Material Purchases?” Journal of Consumer Research, 36(2) (2009).
[17] Legal disclaimer in the fine print: I hereby disclaim all responsibility if you try any of this stuff and end up giving a bad gift that negatively impacts one of your relationships. See Galak, note 15 (“Though gifts are typically given with the best of intentions, there can be major consequences for giving ill-chosen gifts.... At best, a poorly chosen gift will irritate the recipient, and at worst, it may drive the giver and recipient apart.”).
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