Christmas Bonus: The Undercover Economist gives us the low-down on the festive season

Advice for coping with Christmas is pouring in from the agony aunts, the TV chefs, the personal finance experts and the shopping gurus. But who in their right mind would turn to an economist?
I believe that the dismal science could make for a merrier Christmas than you might think. The advice is sometimes as unexpected as the source, but read on and learn.

First, burn your Christmas card list. Deep down, we all know that many Christmas card exchanges are more like vendettas than expressions of seasonal goodwill. Is your yearly card from former neighbours Mr. and Mrs. Grinch a genuine effort to keep in touch - or does it reflect the fact that they refuse to be shamed by being the first to stop?
The economist Thomas Schelling won the Nobel prize in 2005 and advised John F. Kennedy on strategy during the tensest confrontations of the cold war. But he also had a thing or two to say about Christmas cards. He argued for sort of a bankruptcy procedure in which all lists should be burned and people could start again, motivated only by genuine good-will. Take his advice and you’ll be doing yourself a favour. More importantly, you will release all those near-strangers you inflict cards upon. What could be more generous than that?

Do not buy gifts for nieces, nephews or grandchildren. Don’t get me wrong. It’s great to show that you care, but I suggest that you send cash instead. The evidence is that your gifts will be spectacularly incompetent and utterly unappreciated.
Using questionnaires, the economist Joel Waldfogel famously revealed (in an article entitled “The Deadweight Loss of Christmas”) that the typical £25 gift is valued at between £17.50 and £21.50 by the ungrateful recipient, but that gifts from grandparents, aunts and uncles were even less welcome. If you are content to spend £25 to provide £17.50 worth of pleasure to your distant relatives, I will happily take a cut and post them the rest of the cash.

In fact, it really is the thought that counts. It’s not that economists don’t understand or don’t recognise the sentimental value of gifts. We do. Professor Waldfogel explicitly asked his subjects not to consider sentimental value when gave their survey answers. The point is, though, that while sentimental value might indeed outweigh the waste of a poorly-chosen tie, the cheaper the tie the more likely that is to happen. A £25 tie valued at £20 by the recipient is still a good gift if it also creates £10 worth of warm fuzzy feelings. But think how much better it would be to give a £5 tie valued at £4, which still created the same heartfelt pleasure. If we choose big presents badly, we are asking “sentimental value” to do a lot of work for us.

No, don’t give gift cards either. This electronic version of the traditional gift voucher has become very popular in the last few years. Why? I am not sure: a gift that combines all the charm of a tattered fiver, with the thoughtful flexibility of hideous hand-knitted socks. Market researchers estimate that ten per cent of spending on gift cards is wasted because the cards are lost or expire. And the economist Jennifer Pate Offenberg has taken a look at the resale market on eBay. Many people sell their gift cards at a loss of about 15 per cent rather than redeem them. (Lingerie or jewellery gift cards are particularly bad gifts, on this measure.)
Why not, instead, buy a thoughtfully chosen but modest present? If you feel you should be spending more, you can always slip a cheque in there, too.

Actually, maybe it’s better if you don’t give anything at all. The economist Steven Landsburg has pointed out that Ebenezer Scrooge was one of Christmas's greatest philanthropists. His miserly refusal to eat a Christmas turkey, year after year, meant one more turkey that someone else could afford. His capacious bank account meant that money was available to lend out to entrepreneurs and kept interest rates low. There’s nothing wrong with spending money if you or someone else is going to enjoy it, but if it’s going to be frittered away on chintz then you couldn’t ask for a better role-model than Scrooge.

…and when the last Turkey sandwich has been eaten, make those New Year’s resolutions stick. Your fight to give up smoking, go to the gym or lose weight is a battle of will with yourself: the body-conscious dieter battles the weak-willed gourmand who chooses chocolate dessert at every opportunity. Economic theory suggests that your inner dieter can gain the upper hand by making a what is known as a “strategic pre-commitment”. Make a bet with a friend that you’ll lose 20 pounds or donate £100 to a favourite charity, and another one that if you don’t lose 10 pounds you have to send £100 to the Inland Revenue. You can even sign up with a professional company to look after your cash and check up on you: Stickk.com, a new venture set up by economists, is currently holding $1000 hostage until I’ve done 2000 pushups and 2000 pressups. It’s working, too; I reckon I’ll give them some repeated business come January 1st.

But until then, Merry Christmas from the dismal science.

Tim Harford is the author of “The Undercover Economist”, and his new book, “The Logic of Life”, is published in February.

Posted 17/12/2007 16:23:26 by Tim Harford with 0 comments.