With Christmas now in the rearview mirror, I thought it would be interesting to talk about gift giving strategies. According to a recent blurb in Money Magazine, Joel Waldfogel (Wharton School economist) has argued the following about gift-giving:
“The problem with buying presents is that it’s economically inefficient. When I spend $100 on myself, there’s a good chance I’ll get something that will produce $100 worth of satisfaction to me. If somebody else spends $100 on me, and he doesn’t know what I like or what I already have, the gift is likely to be worth less to me — at least 20% less…”
Because of this, Waldfogel recommends giving gift cards instead of physical gifts to those that you don’t know very well. He goes on to say that:
“Presents are fine for close family and friends, but if you’re obligated to give a gift and have no idea what the person wants, you’re much more likely to destroy value by choosing the wrong present.”
So… I’ve written before about the disadvantages of gift cards. Now that you’ve just given and received a bunch of gifts, what do you think?
Speaking for myself, I just received a great gift in a “Secret Santa” gift exchange, but several people didn’t. Beyond this, we actually gave a couple of Amazon.com gift cards because we weren’t sure what the recipients would want.
In the end, this turned out to be a good decision, as the recipients loved the freedom that came along with their gift cards. Had we bought them actual gifts, I doubt they would have derived nearly as much value from whatever we picked out.
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