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Christmas gifts: A loss of value?

There's much to like about Christmas - but what to do about the occasional unwanted gift? Thoughtless gifts represent a clear case of lost value, as far as economists are concerned.

A common fate for Christmas gifts: Auntie's new jumper, once unwrapped, disappears into the far depths of the closet, only to be donated to charity or simply thrown away a few years later. Clearly a loss of added value, noted economics professor Achim Wambach during a Christmas debate held by the University of Cologne.

"Christmas gifts often don't match up with the preferences of the recipient, and are therefore inefficient," said Wambach - his warning to the "Homo economicus," a construct used by economists for those who live strictly according to rational and self-interested considerations.

Wambach backed up his hypothesis with findings from a US colleague, Joel Waldvogel. According to that, when students were asked to estimate the worth of their own presents, it turned out the value was often a lot lower than the actual cost of the presents.

This means that "up to one-third of the value [of the gifts] had already been lost in the gift-giving process," said Wambach, concluding that we might just be better off without Christmas - economically speaking.

Announcement slide of a special Christmas lecture at Cologne University (c) DW/Danhong Zhang

Christmas lecture at Cologne University: a clash between economists

Gifts and appreciation

Wambach's colleague Axel Ockenfels stepped into the role of behavioral economist, defending the value of gifts unto themselves. For that, he pointed to the long, red tie he was wearing: "A gift from Achim Wambach," he said.

Following Wambach's theory, the tie would be a complete loss, as Ockenfels would never have purchased the thing himself. But "once you actually receive such a gift, you end up being happy about it after all - and then your sense of value for it changes, too," Ockenfels said. "Had I instead received 20 euros, I would not have been as happy," the economics professor added, to his students' amusement.

Axel Ockenfels

Ockenfels: Happiniess about a gift increases its value

Wambach, on the other hand, wasn't irritated in the least: It would be a lot more economical, he reasoned, to directly give money instead. A study by the consultancy firm Deloitte indicated that half of all Germans had money at the top of their wish list.

Ockenfels smugly remarked, "I imagine Christmas Eve at the Wambach's a bit like this: They all sit at the Christmas tree and everyone simply pulls out their wallets."

In the end, money isn't everything. Proof of that can be seen in several companies listed on the German stock exchange, the DAX: Even though annual bonus payments to employees were on the rise, their productivity was stagnating.

Ockenfels backed up this finding with a comparison: "When a manager receives a smaller bonus than his co-workers, his motivation declines," he said.

Wish list helps

Despite all criticism against a purely rational Homo economicus, even the behavioral economist admitted that where Christmas gifts are concerned, a certain loss in value can't be denied.

"But these losses can be reduced through communication," said Ockenfels. The most common form of communication in this case would be the Christmas wish list.

Wish list written in crayon

Following Ockenfels' suggestion, his son created a wish list

This Homo economicus has already put that into practice: He gives his son the opportunity to simply compile a wishing list on Amazon.com. "Three days before Christmas eve, I check some items off that list and then simply click 'send.'" That way the gifts arrive on time, all wrapped up and ready to go.

This is a form of efficiency that his colleague merely scoffed at. Christmas is a time of love, and gifts something to be well thought over, according to Wambach. He dreams of a present that he would never get for himself, but that reflects his passionate and romantic side.

Rules for gifts

Wambach sent his students off with some concrete advice: The best thing to do would be, as mentioned earlier, give a gift of cash. Whenever money is for some reason not suitable or appropriate, one should simply act in one's own interests.

Achim Wambach

Wambach: Gifts given based on one's personal interests are more efficient

For example, when a wine connoisseur give others bottles of wine, this "increases efficiency." Wambach pointedly remarked that for himself, he would be best off giving textbooks.

Giving money sends certain signals, as well, according to Wambach. "If someone presents some sort of handmade gift, the message would be: I really have more time than money."

And then there's always the last rule for gift-giving: The person who gives a gift has to suffer. A most special gift for his wife would be to accompany her for an entire day of shopping - living proof that even economists are able to express their love and devotion in a special time of year like this.

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