Wednesday, 26 December 2012

We wish you a very economic Christmas

Schoolonomic would like to wish Merry Christmas and an undisturbed festive season to all of it's past, present and future readers. In today's post, we will explore the economic background of the holidays - what effects does gift-giving have on our economies?



For a long time, economists didn't make any serious efforts to investigate Christmas from an economic viewpoint - and we do have to admit that it's ruining the atmosphere a bit. What sane scientist would go out and investigate the economic effects of gift-giving on Christmas Eve when probably the have some shopping to do themselves? Hence for a long time, economists naturally assumed that the increased spending levels experienced during Christmas have positive macroeconomic effects, end of story. Or is it?

The true costs of gift-giving

Joel Waldfogel from the Yale University thought otherwise. His research concentrated on not the shop selling, but the people giving and receiving the gift. Conducting surveys with 86 of his undergraduates, he asked them to value the gifts they received that Christmas (whether they exchanged some of the gifts with others or not; the final status mattered), and to say how much would they be willing to pay for them.
In a second survey of 58 students, Waldfogel asked his students about the precise details of the gifts received (relationship to the giver, giver's age, type of gift), and once again asked them to value the gifts they received. However, as a second question, students had to determine the amount of cash they'd accept instead of the gifts received.

The results

Waldfogel found that on average, the students would have only paid 66.1% of the estimated value for the gifts they received, and (since we all like cash, but aren't particularly greedy) would have accepted 87.1% of the estimated value of the gifts they received in cash.
This has two very unfortunate consequences for Christmas gift-giving. Firstly, somewhere between 12.9% and 33.9% of our gift-spending goes to waste, since the recipients wouldn't have paid as much for the gift had they bought it for themselves. Secondly, the numbers also show how awful we are at guessing each others gift preferences - as if friends didn't know each other at all.

Can we save Christmas?

However, that is not all that Waldfogel's research tells us. Remember the second survey, where gift receivers (all university undergrads aged between 18 and 22) were asked about who gave them the gift? The categories were:
1) aunts/uncles,
2) siblings,
3) parents,
4) grandparents,
5) friends,
6) "significant others". 
It turns out that the worst gift-givers are aunts/uncles and grandparents; the percentage yield for them (the "substitution" money divided by the price of gift) was 64.4% and 62.2% respectively, with more than 40% of grandparents choosing to abandon gifts altogether and giving cash instead.
After them come siblings and parents; the percentage yield for them was 86.2% and 86.5%, respectively - an amusing, if questionable indicator that sibling quarrels are more lasting than teenage rebellions.
However, there are two groups which save the day - friends and "significant others", the latter probably including girlfriends and boyfriends of the survey-takers (among others). Lovers and friends were highly efficient gift-givers, with their gifts percentage yield reaching as high as 91.7% for lovers and an astonishing 98.8%  for friends.


While gift-giving accuracy may be far from perfect, it is surprisingly good when it comes to friends and lovers, the strongest relationships on average. Also, the questions asked specifically for prices "apart from sentimental value", discarding the satisfaction (the ultimate goal of Christmas) deriving from personal presents. In the end, our friends and close ones know us well enough to give us presents we might like - and even though the rest may end up in obscure shelves and storage rooms, at a time like this, it's possibly the gesture that counts.

Read Waldfogel's paper at this link, or leave us your comments - and once again, we wish you a Merry Christmas and a very happy New Year.

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