Deadweight jungle

Nothing warms the heart and uplifts the soul quite like a heartfelt gift. Friends and loved ones have a special way of imbuing even a modest trinket with deep personal significance. The best gifts are intimate, meaningful, and surprising. So then what happens when gifts become obligatory?

We’ve long pejoratively called commercialized gift-giving the “Hallmark Holiday,” but I doubt Hallmark is to blame for our behavior. Psychology teaches us that external expectations undermine our intrinsic motivation. So when there’s a holiday coming up, rather than expending the emotional labor of creating a deeply intimate gift for every recipient, rational people do exactly what one might imagine: they economize.

Enter the plastic jungle.

When we know that a gift is expected, the pressure’s on to get the right one.  It’ll be put on display in front of family and friends, and a competition ensues for whose gift is the most radical, memorable, and perfectly-suited to the recipient. For many, that pressure multiplied by the hundreds of expectant individuals on birthdays, religious holidays, and X‘s Day’s is too much to handle.

So we resort to a transfer payment.  Put some cash in an envelope? That’s too thoughtless. Instead, decide where your recipient will spend the cash and put a piece of plastic in the envelope instead.

But it turns out, those gifts only serve to make us feel better about our lack of emotional labor.  In the West’s giver-oriented gift culture, we need to know that our recipient is enjoying the gift and expect to hear follow-up stories to know it was put to good use.  That kind of lock-in destroys value for the recipient.  We’ve all been there, having to fake how much we love aunt Molly’s sweater, fondue set, or — more likely today — gift card to Applebees.

The problem is, recipients don’t value these gifts as much as we pay for them.  As far back as 1993, my micro professor wrote a paper called “The Deadweight Loss of Christmas” that describes the effects of mismatch between gift and recipient preference.  As summarized in the Economist, gifts are usually valued at 10-30% less than their actual prices.  The worst offenders are when extended family buys a specific gift, and we all know this. So the modern solution is to use gift cards when there’s a high probability of getting it wrong.

Plastic jungle isn’t my own term.  An entire marketplace by that name exists for people to trade gift cards at a discount, instantly destroying 8-20% of value in fees.

Imagine your broker called you today and offered you an investment that would be worth 85% of its value the following day.  Would you take it?  So why do that with your gifts?

This is the deadweight jungle. When emotions run high and the pressure’s on, we act irrationally. That we’re willing to waste so much value to avoid appearing thoughtless is indicative of the deep desire we have to feel appreciated and remain relevant in our loved ones’ lives.  Sadly, we’re going about it all wrong.

But there’s hope — gifts from friends and significant others are consistently the most valuable and kept the longest.  Why? There’s love in them, and love is memorable.  So, too, is creativity.

Warren Buffett changed the world by getting some of its billionaires to pledge their fortunes away to charity.  Let me suggest another kind of sea change.  For the less wealthy among us, let’s stop wasting money in the jungle.  When you don’t have the time, creativity, or love to give a memorable gift, just don’t give one at all.  Donate it to your favorite charity instead.  Give gifts less often, on random occasions, and throw expectations to the wind.

I promise everything will be okay, your family and friends will still love you, and the world will be a better place without all the extra plastic.

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