The case for giving with heart

I work at a place where people buy the type of Christmas presents you can just bet will be in the garage next year in a box. The consumerist bent of Christmas in recent years has led me to wonder what the point is of giving gifts of little meaning or even little thought. Does the giver gain more value or the receiver?

As for many things, economists have a theory to explain the irrationality of modern gift giving. In any act of trade there is a loss and gain of utility on either end of the transaction. If I give you something worth $50, I have lost $50 of utility because I no longer have that $50 to spend on something else. If you believe that what I gave you is something you would feel good spending $50 on, you have just gained $50 in utility. In this transaction, there has been no net loss or gain of utility.

However, in gift giving, the value of an item is based on personal preference, and no one knows our personal preference as well as ourselves, except maybe spouses, who often claim they know us better than ourselves (or at least know how we should speak or act!). So, if I buy you a gift I think you'll like and it's worth $50, I've lost $50 worth of utility because I obviously thought it was worth $50 or I wouldn't have paid that for it. When I give it to you, you may very well like it, but maybe you would have only spent $35 on it. Thus, there has been a $15 net loss of utility, making the transaction irrational and inefficient.

So from an economists standpoint, there are two ways to solve this conundrum.

1. Give gifts with more meaning. Put a little personal touch into your gifts like a custom made calendar, a personalized book, or something you make from scratch that you know will mean something to the recipient. You can't just get them whatever they give you on a list and think it will solve the problem. Because if I buy something for you I know you want, I will likely lose utility, because I'll feel that what I'm buying you is not worth what I'm paying for it!

2. Give to someone in need. A tradition my wife and I have started is donating to a charity in the other person's name. It will be something with a personal touch like donating money to stock a classroom in Africa with school supplies if your spouse is a teacher. We also have a Happy Birthday Jesus present we buy every year which in future years will be a charitable gift that the children will have to brainstorm and put under the tree to be revealed to us on Christmas morning. In this case, utility should be gained. Even if the recipient does not feel the cause as worthy as the stated value, the ultimate recipient of the charity will certainly feel that the gift is worth many times more what was paid for it. Plus, for those more utilitarian folks out there, you get a tax receipt that can be claimed at the end of the year, thus adding more utility.

3. A very quick and easy way to solve the problem, even if little thought may be involved sometimes, is giving a gift card. There should be no net change in utility unless of course you boo boo and buy someone a gift card for a store they don't care for!