Analysing the Gift.

Gift Efficiency

Joel Waldfogel, in his study The Deadweight Loss of Christmasdescribes gift giving as an economically inefficient practice. The theory goes, simplified of course, that if the giver purchases an item more than the receiver would spend on himself with the same money then the gift has a net loss. He conducts a study which found that “between a tenth and a third of the value of holiday gifts is destroyed by gift giving” (p8), tying value to one’s desire to have the product for the price it is advertised (which largely goes untested if you are buying on the assumption of someone else’s desire for the product) combined with the opportunity cost of what would have been purchased otherwise in its place. In short, Waldfogel proposes that since a proportion of receivers do not want, would not buy, or would not buy for the price of the product, that the holiday season could see a deadweight loss (loss of economic efficiency) of £2-8 billion if £24 billion were spent on gifts over the Christmas period (£24 billion figure comes from the estimated retail intake of Christmas, 2015). 

By the numbers, it is certainly valid to question the legitimacy of gift giving over simply just exchanging monetary gifts so the receiver can spend as he desires, but before you declare an end to Christmas presents altogether, Waldfogel, and others who make this kind of argument, forget a couple of basic points.

First, if the product is created to be a gift item its price is accurately tested by the giver’s desire to purchase an item of that value as a gift, regardless of the product itself. It is also evaluated on a would-I-buy basis, where the giver considers if the product is worth the price of what you get, which is why multi-packs exist. In other words, price-value is no more affected than it would be if the receiver were to make the same judgments themselves.

Second, if there was only one giver and receiver then perhaps the issue of an opportunity cost could be argued but since gifts are often exchanged over the Christmas period (and over time on birthdays), it throws a spanner in the works; if I buy my friend a necklace worth £50, and they would have spent £30 on themselves, there is a loss of £20. But what happens if they give me a wallet worth £30 when I would have spent £10? Do they cancel each other out, as each loss to the consumer and receiver is the same?

Third, as I’m sure the Dickensians are screaming at the screen, there are other reasons for giving a gift, and other attributed values to receiving one. Receiving a gift may hold more value sentimentally to the receiver than a cheaper product would save if bought for themselves. Does the thought not count?

Behind the Gift

So why do people gift? Malinowski, while defining the Kula Ring of Papa New Guinea (a system of gift-exchange in the Milne Bay Province), described the importance of reciprocity. According to Malinowski there are no gifts without expectation, I do not give without expecting a gift in return or some other form of exchange (like social acceptance). While I think that’s probably true, it does raise the question; why do we desire gifts, and why do we give them?

Some argue, like Chris Gregory, that giving gifts is a form of securing relationships with people through debt. If I give a present then I place the receiver in my debt until they give a present back, for which I am then in their debt. The basic problem I have with this theory, aside from the view of gift giving as a display of dominance (which I think is an oversimplification) is that if the receiver repays their debt, why would it place debt back on the giver again?  Also, this argument does not have a first cause, what initiates the debt cycle in the first place, do you give a person a gift the first time you meet them to ensure the relationship is secured? In that way, is gift giving only half about putting others in debt, and half about repaying it?

The argument from reciprocity, that to give is to desire receipt, seems to be that in order to find the answer to why we want to give, we must first ask the question “why do we want to receive?” However it does not consider what may be received intrinsically by the act of giving itself, and I don’t mean the “warm-feeling” you get from seeing someone happy, what I’m talking about is self-image. In some tribes, the giver of a rich gift (a richer gift than may be able to be returned value-for-value) places power in the hands of the giver and demonises the receiver for not being able to reciprocate. So why would one give if they know they will not get value in return? Maybe gift giving is a form of competitive dominance, where the receiver feels lesser upon receipt and must counter that by offering a gift of better value rather than returning value in order to regain the power, people cannot share power after all, so while similar to Gregory’s “debt placement” it would rather be a power struggle – or maybe it is the fight to be recognised by your tribe as a prominent giver. But as I said before, I do think this is an oversimplification.

A Gift as Reward

I mentioned the intrinsic reward of gift giving, in the same vein as doing a good job at work makes you motivated, seeing yourself as the better “giver” may motivate you to continue giving. However, I want to look now at the possibility of the gift as an extrinsic reward, that is, a reward provided rather than as a result of action.

In business terms, to give money to an employee for doing a good job is an extrinsic reward which may help motivate them or certainly incentivise them to continue doing that good job. So perhaps a gift is a form of social incentive. Companionship is an essential part of human nature, before it just became weird to keep to yourself all the time it may well have been dangerous not to have an ally, someone you can trust. So I would suggest that perhaps, like passing a compliment, giving a gift is a ritual of companionship to ensure the trust of your ally or friend remains intact. On top of that we give to motivate them as an extrinsic reward (where before it may have been a share of your food, and now an Xbox One), to continue being your ally and to show them that you appreciate their companionship; which would happen vice versa and in the same way provide reassurance to both parties that this person’s trust in you is secured.

I would love to hear any counter arguments or ideas about the origins of gift giving, or its economic impact, so please leave a comment down below and share your thoughts!

(Image by Evalowyn (Own work) [CC BY 3.0 (, via Wikimedia Commons)