(image credit: Peter Dutton CC BY)

Why are we giving gifts?

Lifting the veil over a mysterious custom

This is the time of the year when it is obligatory for any piece with even the vaguest reference to Christmas, gifts, or economics to mention economist Joel Waldfogel and his classic paper, The deadweight loss of Christmas. In it, he explains why the habit of giving each other presents at Christmas has an overall negative economic effect (to the tune of $25 billion worldwide per annum in 2009). There, that’s me done.

But is our collective engagement in an activity so detrimental to the economy proof that we are irrational beyond redemption? That is not so sure. Much of our behaviour that looks, superficially, as if it is irrational — in the sense that it appears to be a deliberate action that goes against our own self-interest — is nothing of the kind. Sometimes there is more to economic transactions than a material balance sheet showing a consumer surplus (in human language: we value the goods or services we have bought more than the money we paid for it).

Giving gifts is one of those transactions where this may well be the case. Let’s look at some reasons beyond material gain why it may make sense to buy someone a present.

Multiple beholders

They say value is in the eye of the beholder, and with gifts, there are often multiple beholders. There is not only the lucky recipient, but there is also you, the generous giver, and there are any number of bystanders, people who see or learn about your gift.

The material effect to the beneficiary is pretty clear — with a net gain of a jumper they are economically better off. You, on the other hand, are giving something away, so the material result of the transaction looked at in isolation is negative. But there are of course immaterial aspects to it. Picture the gift is a really nice surprise to the recipient, and they show this with great gusto, through genuine signs of gratitude. That’s the kind of stuff you cannot buy for money — except indirectly by giving such a wonderful gift. Is that alone worth the expense? Quite possibly. You can surely imagine how the elation of a loved one upon receiving such a brilliant gift might give you immeasurable happiness.

The perfect gift? (Note the bonus woolly hat) (photo: Stuart Chalmers CC BY)

But there is more. Perhaps you have ulterior motives. Reciprocity is a social psychology concept that describes how a positive action is often encouraging an equally positive response. So by giving a gift, you “buy” a future favour of some kind (or simply some amount of social credit). A third possibility is that you value the warm glow — the emotional satisfaction of doing something good (like giving someone a jumper).

The signalling gift

What about the bystanders? Giving gifts can function as a signal. Nature is full of such signalling messages — from male birds building a spectacular nest to attract a mate, to gorillas thumping their chest to show their dominance. Now it is rare for people at Christmas to, say, build a house as a present for the one of their dreams, or to stand up during dinner and perform a chest-beating drum solo to show who’s boss. But a big, fat, expensive gift does signal to all and sundry that you are well off and generous, and that may be worth advertising (if that is your thing). A quirky, witty gift is a sign that you’re a quirky, witty person, and may be useful to build or maintain a certain reputation. Such messages too can have value.

But perhaps the weightiest signal a gift can send is not to others, but to the person receiving your gift. It is the sacrifice you make that shows how much you care. Part of this is the money you spend, but it may also be the time you’ve spent tracking down that rare David Bowie album, or indeed the amount of effort you put into knitting that unique jumper. It is important to bear in mind that it is the perception of your sacrifice in the eye of the recipient that matters, though. It must look meaningful, and that means not just anything will do. Your gift may be evaluated against the typical Christmas present (whatever that may be), or compared with other gifts (what are you giving to others, what are others giving to the recipient, or even what are others giving to others?).

Maybe what you are aiming to get in return for your present is prominence in the recipient’s mind? It’s all well and good to make a big impression on Christmas day, but if your gift is then promptly forgotten forever more, it’s a bit of a waste. In that case, you may want to consider something that they will use (or at least see) every day, providing a frequent reminder of your generosity and perspicacity. But subtlety is probably advisable: a life-size sculpture of yourself to put in the front garden may be a little too much.

Too complicated?

Behold, an orgy of wealth destruction (photo: Alexander Baxevanis CC BY)

With this multitude of possible reasons to give gifts, it’s not surprising that, for many people, this is a stressful affair. Giving cash — according to Dr Waldfogel the best way to counter the “orgy of wealth destruction” — would avoid all the confusion. The signal it sends, apart from the magnitude of the sum, is simply that you’re not into playing games and that you value economic efficiency. Then again, it may also reveal something about your personality, as economist Rachel Meager confessed in a tweet:

Who knows, the overriding reason why we give gifts at Christmas might not be found in the various potential motives, or in what we believe we get in return. Among the strongest behavioural drivers is social proof, a term coined by Robert Cialdini in his classic book Influence. We tend to copy the actions of others, especially when we have no strong, clear preferences. And there is something to be said for that if you find it all a bit complicated: if you let yourself simply be guided by what others do, you are freed of all these other considerations, and you can enjoy a truly peaceful Christmas.

Merry Christmas and a Happy New Year!

Originally published at koenfucius.wordpress.com on December 21, 2018.

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Accidental behavioural economist in search of wisdom. Uses insights from (behavioural) economics in organization development. On Twitter as @koenfucius