If you haven’t got around to buying that important Christmas gift for someone special, I have a ‘Get out of jail free’ card for you today, courtesy of a couple of respected economists. Just give cash. It makes perfect sense.
Writing in The Armchair Economist, Stephen Landsburg says he doesn’t understand why people give each other shop-bought gifts instead of cash, which is never the wrong size or color. Some say that we give gifts because it shows that we took the time to shop. But Landsburg argues we could accomplish the same thing by giving the cash value of our shopping time, showing that we took the time to earn the money.
In a 1993 American Economic Review article “The Deadweight Loss of Christmas,” economist Joel Waldfogel concluded that holiday gift-giving destroys a significant portion of the value of the gifts given because the best outcome possible is to duplicate the choices that the gift-recipient would have made on his or her own with the cash-equivalent of the gift. But in reality, it’s inevitable that many gifts given will not perfectly match the recipient’s own preferences. In those cases, the recipient will be worse off with the sub-optimal gift selected by the gift-giver than if the recipient was given cash and allowed to choose his or her own gift.
So there you are, the perfect economic explanation when you hand over a few notes in an envelope on Christmas morning. Nobody could reasonably argue with that and if you try it I’d love you to video the reaction…just to prove that economic logic wins every time