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Why holiday gifts get more ‘ughs’ than ‘oohs’

Posted Dec. 02, 2012, at 4:13 p.m.

Behavioral economists study human errors. People don’t always make the best choices for themselves, so there’s good reason to doubt whether they will always make the best choices for others.

If you’ve ever received a useless gadget, a horrendous tie or some kind of bowl, you’ll know that when people buy Christmas presents, they can blunder badly. Chances are pretty good that whatever you end up getting people this year, and however hard you try, some of your friends and family aren’t going to think that the gift is worth what you paid for it.

University of Minnesota economist Joel Waldfogel, author of “Scroogenomics,” finds that Americans spend about $65 billion on winter holiday presents every year — and that many of those billions are wasted because a lot of people don’t much like what they get. Typically the value of a gift to the recipient is about 20 percent lower than its cost. He describes the holiday season as “an orgy of value destruction.”

Here are some tips, building on six behavioral findings that bear directly on holiday-season mis- giving, that might help you get through December a little better.

Egocentric bias

If you’re like most people, you have an exaggerated sense of how much other people are like you. You probably think their tastes and values are closer to yours than they actually are.

Focusing illusion

When people focus on a product or an activity, or on a single feature of a situation, they tend to think that it matters a lot more than it does. For example, people in both California and Iowa have been found to think that people in California are happier than those in Iowa (which isn’t so). The reason for the mistake is that people focus on the most salient difference between California and Iowa, which is the weather, even though a warmer climate doesn’t much affect people’s happiness.

Projection bias

When people are hungry, they tend to order a ton of food, even if they aren’t going to eat all or even most of it. They know, of course, that their tastes will change over time, but they project their current emotional state into the future and thus underestimate the magnitude of the change.

Optimistic bias

Human beings tend to be unrealistically optimistic. Most people think they are better than the average driver and less likely to be involved in a serious accident. When people give presents, unrealistic optimism goes off the charts. We are often amazed that people don’t love what we’ve selected. Please don’t be. (And please consider avoiding the optimistic exclamation, “You’re going to love it!”)

Cumulative-cost neglect

People often borrow too much because they neglect the cumulative costs of individual expenditures. If you use your credit card to purchase 20 sensible gifts, you might be alarmed by the total expense. When gift-givers don’t keep at least a rough running tab, they may find that they have spent a lot more than they expected or can easily afford.

Spotlight effect

If you are like most people, you think that people are watching you far more carefully than they actually are. In one experiment, students were asked to go into a classroom wearing a shirt with a picture of Barry Manilow on it (which is pretty embarrassing).

For the holiday season, many of us focus too intently on how other people will react to what we get them, when it may be the mere existence of the present, rather than exactly what it is, that most matters. Unless you are dealing with someone who really cares about what you get them, you should worry a lot less (and maybe spend less, too).

A few years ago, my sister declared a family moratorium on Christmas presents for anyone over 15. We all celebrated. Other people, including Waldfogel himself, have suggested a different solution. Instead of giving people more gadgets, ties or bowls, tell them that this year, you’re going to make a donation in their name to a charity of their choice. Can you think of a better way to show the spirit of the season?

Cass R. Sunstein, the Felix Frankfurter professor of law at Harvard University, is a Bloomberg View columnist.

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