Hello everyone and welcome to 2011, I trust everyone had a nice Christmas and new years!

I have some questions which I would like to ask everyone, and they are; how did everyone rate their gifts? Were you happy with them? Are they useful? Will you actually use them? And most importantly what would you have paid for them?

I was hoping to post this last week but I was too busy eating ham, turkey and Christmas pudding! Oh and unwrapping the few presents I was given to assess the economic value they would provide me.

To me as nice as Christmas is and as much utility as we gain from gifting others, I cannot help but think it is all somewhat of a waste of money… and I don’t appear to be the only one to think this.

In a recent article in the Sydney Morning Herald, Adele Horin’s article ‘Christmas, a waste of time, money and presents’ discusses the situation in Australia with Richard Denniss, who is the Executive Director of The Australia Institute.  What was found was that last Christmas 6 million Australians (which equals approx. 27% of the population) received presents they never used or gave away. Richard Denniss said unwanted gifts represent $798 million of waste, time, money and resources. The article also notes that about one quarter of Australians expect to give a gift to someone they do not want to and according to Denniss ”The growing culture of obligatory giving only brings joy to the big retailers and the big banks whose credit cards are largely funding the annual splurge”.

According to Joel Waldfogel; the author of ‘Gifts, Cash and Stigma’ from the journal Economic Inquiry; each year individuals in the United States transfer between $50 and $72 billion in resources in the form of noncash holiday gifts, despite the fact that recipients are found to value their noncash gifts by an average of 10% less than the price paid for by the giver.

So if this is the case, why do we bother giving gifts at all? Why not give cash? It would make more sense as you would be able to buy what you like and or allocate the funds appropriately. However if we all did that then it would definitely be awkward for two people to exchange envelopes of cash with different amounts inside. Waldfogel found evidence that “the decision to give cash is influenced by the givers’ ability to choose desired noncash gifts, and we rationalize the rarity of cash gifts with a stigma that givers attach to giving cash, relative to giving noncash gifts”.

I suspect we probably persist with gift giving simply because we like to receive gifts ourselves. It is fun receiving gifts, even though it has been proven we usually assign a lesser value and obtain less utility from the item than if we had made the purchase ourselves.

Armin Falk the author of ‘Gift Exchange in the Field’ from the journal of Econometrica discusses the importance of gift exchange. In his study, he requested donations for a charitable purpose and found that the likelihood people would reciprocate with a donation increased by between 17% – 75% depending on the size of the gift they received. Looking at these results it is now easy to see why we still persist with giving gifts… Perhaps just so we can get one back!

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