Wednesday, December 20, 2006


In this week's New Yorker, James Surowiecki writes about applications of economic thinking to holiday gifting. You don't have to be an economist to look into other people's shopping carts and roll your eyes at their choices -- or smile at the amazing variety of tastes and preferences.

So the impossibility of efficient giving is clear. (Joel Waldfogel has documented the extent of the inefficiency.) Then why do people exchange gifts and why have they been doing this for so long? There is obviously more going on than differences in the cash-equivalent valuation of the item between giver and receiver.

On the benefits side, many people (I am not one) greatly enjoy shopping, choosing, wrapping, etc. On the cost side, the dollar cost of the gift understates the time and the hassle invested --although internet shopping reduces some of this.

As we cannot measure any of the many intangibles, we have to two choices. Either many people are making dumb choices or the intangibles have it.

Even Daniel Gilbert does not say that we are being dumb. We make do with the equipment that we have -- that we have acquired via evolution over many years.