At an interview a few years back I was asked if I would give cash to someone, or buy a gift. The traditional economics answer is of course to stump up the dosh, uless you can buy a gift that the recipient would have bought anyway, but that requires extremely rare powers of insight (or paying attention, as my wife calls it). The normal person’s attitude to gift-giving is to buy something the recipient would NOT have bought for themselves. What’s a gift-giving economist (who is trying to be a thoughtful person) to do?
Alex Tabarrok concludes that gift-giving is a manifestation of pleasing the (non-rational?) romantic/passionate self. The gift then is not about the purchase and exchange of just those Manolo Blahniks, but everything that their purchase represents (no, not cheap 3rd world labour - its Christmas for, well, Christ’s sake, stop being so cynical!). This anthropological explanation is probably about right, and tells me I should go out and buy my wife her shoes (it’s also a good example of how different tools can be applied when analysing problems from a different domain)
But for completeness, and just to satisfy my inner economics nerd, there is an alternative economic argument that points to the same conclusion.
The explanation centres around individuals’ self-constrained choices. Individuals who may possess the means to buy expensive wines, may instead consume cheaper wines in a bid to control their spending: one purchase of expensive red bordeaux opens the floodgates to many other cases, so it’s easier to drink sub-optimal bottles instead (yes, the choice is sub-optimal in one sense, but when optimising over time, and considering the self-contorl problem, it’s the ‘optimal’ choice). For this individual then, receiving a bottle of 1982 Mouton Rothschild would bring enormous utility, even though, self-evidently they don’t buy it themselves.
The end result, whether you favour the economics of anthropological argument is the same: be extravagant when shopping for presents. And whilst it’s not good financial sense, put that spending on a credit card: the separation of purchase and physical payment makes the payment less salient, and therefore less painful. And the credit card will also (partly) stave off that enormous feeling of regret when those long, lonely unsocial January evenings come to pass. The £300 for a pair of shoes, looks a lot less imposing when it’s part of an anonymous balance of £1800.
Christmas is a great season to witness behavioural economics in action. When I return, I’ll opine about the ‘January’ sales. Merry Christmas.
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