Nathan’s Blog

Why do we give each other gifts at Christmas? What if someone gets you something you don’t want? Wouldn’t it be better if everyone just exchanged cash?

This is the argument that Tyler Cowen and Alex Tabarrok (from Marginal Revolution) make in this funny holiday video:

Basically, their argument is:

• When you’re buying a gift for someone, you don’t have the knowledge or motivation to spend the money as effectively as they would spend it on themselves, which explains why people often get things for Christmas that they don’t like.
• This creates a sort of “negative-sum transaction” that, in aggregate, creates roughly $20 billion dollars of waste in the US economy every year around the Holidays. (This number came from a study that showed, on average, people would only be willing to pay $40 for every $50 worth of gifts they receive).
• This leads to the inevitable conclusion: we would all be better off, at least in terms of the utility we get from our gifts, if we just exchanged cash instead.

I’m no expert, but I strongly suspect this line of thinking entirely misses the point of gift-giving during the holidays.

It seems to me that the main point of gift giving is not the use of the thing. It’s to create a physical reminder that you love someone; or to nudge a loved one towards certain behaviors (e.g. “you should get into jazz!”); or to show off your sense of humor.

In other words, gifts are primarily social transactions, not economic ones.

Generally speaking, when you look at something that happens in every culture all over the world, and you realize that your theory says it shouldn’t exist, it’s probably a sign that there is a problem with your theory. Not the world.

See also: Chesterton’s fence. Also, thanks to Robin Hanson for teaching me that X is often not about Y.