{"id":471,"date":"2020-12-02T11:28:52","date_gmt":"2020-12-02T15:28:52","guid":{"rendered":"http:\/\/sites.nd.edu\/lawrence-c-marsh\/?p=471"},"modified":"2024-01-22T15:30:50","modified_gmt":"2024-01-22T19:30:50","slug":"the-deadweight-loss-of-christmas-revisited","status":"publish","type":"post","link":"https:\/\/sites.nd.edu\/lawrence-c-marsh\/2020\/12\/02\/the-deadweight-loss-of-christmas-revisited\/","title":{"rendered":"The Deadweight Loss of Christmas (revisited)"},"content":{"rendered":"\n
To sign up for this free monthly\u00a0Money Flow Newsletter<\/em>\u00a0=>\u00a0\u00a0click here<\/a><\/strong>.<\/strong><\/a>

Economics is about the efficient allocation of resources. But gift giving is anything but efficient. From a purely transactional point of view, wouldn’t Uncle Jim be better off if you just handed him $50 than spending that $50 on another ugly sweater for him?\u00a0 Why guess what the other person wants?\u00a0 Perhaps\u00a0a $50 gift card from\u00a0Walmart might work, but what if what Uncle Jim\u00a0really wants is not sold at Walmart?\u00a0 Instead, what if\u00a0you\u00a0just give him\u00a0$50\u00a0and he\u00a0gives you\u00a0$50?\u00a0 Wouldn’t that be the most efficient gift exchange of all?\u00a0

Joel Waldfogel\u00a0presented\u00a0and analyzed this problem\u00a0in the December 1993 issue of\u00a0The American Economic Review<\/em>\u00a0in an article entitled: “The Deadweight Loss of Christmas.” For close relationships such as a good friend or significant other, the loss of efficiency from gift giving may average about one-tenth of the value of the gift; whereas, for more distant relatives or friends, the loss of efficiency may average closer to a third of the value of the gift.\u00a0

It is clear that social relationships are different from economic relationships. The problem is that economics students are taught to view the world from a purely\u00a0transactional point of view. This doesn’t mean that we don’t care about other people, but just that economists don’t generally consider\u00a0“intent”\u00a0as important.\u00a0But it is important. Meaning may be imbued into a gift by virtue of the fact that the gift-giver meant well, even if the gift was not optimal to the recipient given the amount paid for the gift.\u00a0Gift giving is associated with good intent, but behavior can also be distorted by bad intent. Having your car dented in a hail storm is much less upsetting that someone denting it with a hammer.\u00a0

How about all those great Thanksgiving dinners your mother-in-law made in years past? As you left, did you give her a tip, or pull $50 out of your wallet to pay\u00a0her\u00a0for the great meal? People who are trying to build or strengthen a relationship\u00a0don’t want to be simply paid off for their efforts in some sort of quid pro quo manner. Social (noncognitive) skills are often more\u00a0important than\u00a0technical\u00a0(cognitive) skills in navigating the real world. Unfortunately, most economic textbooks in the past have tended to ignore such considerations.

Economists create a fantasy world where everything is about money and market relationships. In the past\u00a0economics professors have tended to ignore aspects of life that cannot be measured or understood in terms of money.\u00a0But this ignores the most important relationships of all. The problem boils down to prediction. Neurologists frequently\u00a0point out that the primary purpose of the human brain is prediction. In primitive times knowing what to expect in different circumstances was often\u00a0a matter of life or death. Even today, accurate prediction\u00a0is often the key to success or failure. If people are motivated by things other than money, then an economic prediction methodology based primarily on money\u00a0may lead us seriously astray if people tend to\u00a0deviate from gaining the highest monetary return because they are willing to\u00a0sacrifice money for other less tangible and less measurable objectives.\u00a0

Remember over this holiday season, that it is not the gift that counts, but the thought behind it that matters. (And that there is sometimes more truth in old cliches, than in that\u00a0Principles of Economics<\/em>\u00a0textbook.)

______________________________________________
Lawrence C. Marsh is Professor Emeritus in Economics at the University of Notre Dame and author\u00a0of the 2020 book:\u00a0Optimal Money Flow: A New Vision on How a Dynamic-Growth Economy Can Work for Everyone<\/a>.\u00a0
_______________________________________________
You can donate the entire purchase price of the book to\u00a0student scholarships\u00a0by buying a\u00a0hard-bound copy of the\u00a0Optimal Money Flow<\/em>\u00a0book at the Avila University Press website at:\u00a0\u00a0https:\/\/www.avila.edu\/aupress\/optimal-money-flow-by-lawrence-c-marsh<\/a>\u00a0\u00a0
_______________________________________________
For a limited time (21 days) listen to\u00a0Optimal Money Flow<\/em>\u00a0for free on your smartphone or computer from here:\u00a0 https:\/\/www.hoopladigital.com\/artist\/7090137015\u00a0
_________________________________________________
Please provide your insights and comments on the Deadweight Loss of Christmas (revisited)\u00a0at:
https:\/\/sites.nd.edu\/lawrence-c-marsh\/\u00a0
_________________________________________________
To sign up for this free monthly\u00a0Money Flow Newsletter<\/em>\u00a0=>\u00a0\u00a0click here<\/a><\/strong>.<\/strong><\/a>
_________________________________________________<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n
<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n
For additional details see the\u00a0Optimal Money Flow<\/strong>\u00a0book website at:
http:\/\/optimal-money-flow.website<\/a> or my 2018 paper presented at 2019\u00a0American Economic Association<\/strong>\u00a0conference in Atlanta, GA:
https:\/\/www.aeaweb.org\/conference\/2019\/preliminary\/paper\/FT7A95eS<\/a>___________________________________The full purchase price ($24.95) will go into the student scholarship fund when purchased through\u00a0Avila University Press<\/strong>\u00a0at the link:\u00a0\u00a0https:\/\/www.avila.edu\/aupress\/optimal-money-flow-by-lawrence-c-marsh<\/a><\/td><\/tr><\/tbody><\/table><\/figure>\n","protected":false},"excerpt":{"rendered":"

To sign up for this free monthly\u00a0Money Flow Newsletter\u00a0=>\u00a0\u00a0click here. Economics is about the efficient allocation of resources. But gift giving is anything but efficient. From a purely transactional point of view, wouldn’t Uncle Jim be better off if you just handed him $50 than spending that $50 on another ugly sweater for him?\u00a0 Why […]<\/p>\n","protected":false},"author":2549,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[230509],"tags":[],"class_list":["post-471","post","type-post","status-publish","format-standard","hentry","category-money-in-individual-choice"],"_links":{"self":[{"href":"https:\/\/sites.nd.edu\/lawrence-c-marsh\/wp-json\/wp\/v2\/posts\/471","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/sites.nd.edu\/lawrence-c-marsh\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/sites.nd.edu\/lawrence-c-marsh\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/sites.nd.edu\/lawrence-c-marsh\/wp-json\/wp\/v2\/users\/2549"}],"replies":[{"embeddable":true,"href":"https:\/\/sites.nd.edu\/lawrence-c-marsh\/wp-json\/wp\/v2\/comments?post=471"}],"version-history":[{"count":2,"href":"https:\/\/sites.nd.edu\/lawrence-c-marsh\/wp-json\/wp\/v2\/posts\/471\/revisions"}],"predecessor-version":[{"id":478,"href":"https:\/\/sites.nd.edu\/lawrence-c-marsh\/wp-json\/wp\/v2\/posts\/471\/revisions\/478"}],"wp:attachment":[{"href":"https:\/\/sites.nd.edu\/lawrence-c-marsh\/wp-json\/wp\/v2\/media?parent=471"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/sites.nd.edu\/lawrence-c-marsh\/wp-json\/wp\/v2\/categories?post=471"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/sites.nd.edu\/lawrence-c-marsh\/wp-json\/wp\/v2\/tags?post=471"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}