Annual reminder that you suck at giving gifts

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The economic costs of disappointing gifts don’t just include the lost value from unwanted gifts, but also the time and frustration of handling returns—on top of the original disappointment. Your friend or relative either doesn’t know you as well as they think or didn’t take the time to figure it out. Stress and hurt feelings are actual costs—they’re just hard to quantify.

Economists have a term for the negatives caused by unwanted gifts: deadweight loss, which is a loss that is not offset by gains to anyone else. In a normal transaction, all parties to the transaction are better off because they made the transaction. Otherwise, they wouldn’t make the deal in the first place.

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When buying for someone else, though, even someone we know very well, there is a pretty strong likelihood that we won’t be able to predict the recipient’s preferences as well as she would. So we end up with significant deadweight loss each holiday season as gifts are given that aren’t fully valued by their new owners.

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In any exchange, including gift giving, there are at least two sets of utility involved: the recipient’s and the giver’s. And, while holiday gift giving is more like a transfer than what we think of as an exchange, both utilities should be included.

Money is an approximation of value. It’s not exactly what we mean, but it’s close enough to be exceedingly useful for exchanges. However, when exchanging or gift giving with those we are close to, many more values are in play than simply the value of the gift.

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