Tuesday, December 26, 2006

Gift Giving: Economics Vs Intangible Values

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This is the day after Christmas. The much-anticipated day when retail stores collide with hordes of shoppers, the latter armed with tons of unwrapped gifts received but to be returned either as unexpected, unwanted, ill-fitting, or simply dispensable. And the former for their parts, ably fortified with inventory prices slashed to the bare bones, backed with everything down to the kitchen sink to lure those harried shoppers into the premises and shrewdly attempt to divest them of funds coming either from returns credits, from leftover or hoarded disposable funds, or from the now greatly favored and ubiquitous gift cards that retail stores have flooded the markets with.

In the US alone, perky TV newscasters wading into crowded stores and blending in with the packs of early-bird shoppers have been blaring all day about what this auspicious day promises to be. They authoritatively lecture listeners that retail sales for the period from Thanksgiving to Christmas will account for 25% of yearly sales, and that profits from this same abbreviated period will account for about 60% of yearly profits, making it the retailers’ most profitable period for the year. Fearless forecasts peg that total sales for this day will most likely exceed those on Black Friday, the day after Thanksgiving and the Saturday before Christmas, traditionally the best sales day for the entire year. This year sadly both dates could not break the 10 billion dollars mark for all those stores included in the reported surveys.

Thus, from a strictly Economics point of view, most early prognostications are generally upbeat. Score a big point for the dismal science. But on the downside, the same science in another vein exposes to us inefficiency in the current practices of gift giving, exclusive and apart from the ritual of massive returns of gifts which characterizes this day’s activities. And it is that by and large, when surveyed and polled gift recipients project a rather dreary unintended consequence about gifts received. For when asked about their estimates of the value of gifts received or how much they themselves would pay for the gifts received assuming they were needed by them, recipients typically undervalue the gifts or would spend considerably less for them if paying out of their own pockets. Undervalued by as much as 10% of how much the gifts actually cost, giving rise to what would be called a waste, or at the very least an inefficiency, in expenditure. Economists call it deadweight loss. Thus, had the recipient instead been given cash, he would have purchased the same for less price and get the same satisfaction. Now, to get perspective, if gift-giving in the US during the Christmas season amounts to over 50 billion dollars, and that would be a conservative estimate for actuals, we would have a loss of 5 billion dollars that could otherwise have gone to more productive undertakings, or put differently, allocated to more efficient application of resources. And we have not included here the other gift giving occasions such as birthdays, anniversaries, graduations, etc.

Remember the ubiquitous gift cards mentioned above? They appear to be an easy answer to this dilemma.

But wait.

The revered practice of gift-giving, very visible and highlighted during the Xmas holidays, is more involved than that, for one it is generally accepted as lying at a plane above the very mundane concepts and earthbound theories of Economics. Because beyond just cash or financial values, gift giving in the spirit of Christmas partakes precisely also of things spiritual, intangible and unquantifiable. We enter into the realm of sentimental values. Because in gift giving it is “the thought that counts, not the price of the gift.” The self-same mantra recalcitrant miserly givers are accused of pre-empting and hiding under.

Add to that what the economic theory of signalling may connote and assign to gift giving, which essentially claims that gifts act as signals from the giver to the recipient, allowing the recipient to gain a hoped-for balanced access to information that a giver may have for the recipient. To illustrate, in gift giving to loved ones, in a real way the actual gift of the giver makes known to the recipient how the giver feels about him or her. Thus, we popularly speak about sentimental values, which typically trump financial values of the gifts. An apt application of the trite axiom, the thought and not the price of the gift.

So what are we to make of this?

In such an obvious dilemma, I suppose a happy blending of Economics with sentimental values could work justifiably well for society collectively. But given the vagaries of unpredictable human behavior expect no abatement to the frenzied rush we call the day after Christmas shopping spree.

Just assure you give best diligent efforts to “signal” to loved ones the appropriate messages your gifts are supposed to convey – not only your showering love and attention, but also your workable understanding of their real needs and desires.

Or maybe, be the modern “old” Ebenezer Scrooge, not for his lack of moral clarity, but for the “perceived” economic benefits for being maybe not miserly, but frugal, thrifty, sparing, economical, austere, or what have you. But that’s another issue for another time.