It's no secret that people spend a lot of money during the holiday season. In fact, it is estimated that the average American spends more than $700 on gifts alone. While most people love opening gifts on Christmas morning, however, the feeling of opening a less-than-stellar gift is all too familiar for most of us.
Unfortunately, because we cannot exactly predict the wants and needs of our friends and family, everyone ends up contributing to the deadweight loss that comes from giving gifts. In general, people buy gifts for a cost higher than the receiver would actually be willing to pay for the gift if they were to buy it themselves. The gift then has a deadweight loss associated with the process of giving.
However, because humans are irrational and don't perfectly follow economic theory, we are still willing to buy gifts because of the other reasons we give gifts. Giving is not just about the transfer of income to our friends and family. It has sentimental and emotional value that cannot be given a price tag. Because of this, we still buy gifts even though it clearly makes no economic sense for us to do so. This holiday season, if you're trying to get the most bang for your buck when it comes to giving gifts, consider a gift of cash. Keep in mind, however, that your economic practicality isn't the best way to show your family and friends that you love them!
Works Cited:
https://abcnews.go.com/WN/mailform?id=14998335
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Great post Teagan! I found your observation of the economic impact the simple act of gift giving out of obligation has on the economy to be very interesting. While reading this I began thinking about how the concept of Christmas lists can help eliminate this deadweight loss that is created by the act of gift giving.
ReplyDeleteThis was a very interesting post Teagan especially with how relatable it is. This is also applicable to birthdays and other giving events. It would be interesting if there was a way to eliminate this deadweight loss but still be able to maintain this element of surprise for the person receiving the gift.
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