Do you like the gifts you were given this past holiday season? Are you sure the gifts you gave are liked by the people who received them? You can hear it emphasized each year that the holiday season is not about the gift giving, but rather the time to celebrate with friends and family. In this article economists (shocker) take a different argument by questioning whether gift giving is in fact irrational. Studies have shown that receivers of gifts typically assign a lower value to the gift than the price for which it was purchased. One study even suggests that this effect means as much as a third of the money spent on gifts is wasted.
To avoid this effect, rational economists argue the only gift that should be given is cash. The behavioral economists, however, have analyzed the social utility of giving gifts. Gifts are organized as pure exchanges (ex. socks for the grandson in need of socks), paternalistic gifts that drive economists crazy because the preferences of the receiver are ignored (Gifts you think the receiver should like. Ex. a new CD), gifts someone likes, but feels guilty buying for themselves, and several other interesting types of gifts and their purposes (ex. gifts brought for the host of a party).
You can find the article here on the Wall Street Journal website
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