A couple years back, Joel Waldfogel, a professor of economics, published a book entitled “Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays“.
In it, he argues that you should give cash or gift cards because, unless you really know the person, 20% of the money you are spending is wasted. That is because if you aren’t very close to the person, your ability to guess what someone wants and get exactly the “right” gift falls short…
We think you are wasting up to 33% of the money you spend on gifts you buy for hard to shop for people. Which is not everyone you buy for, admittedly. It’s only about 60% of the people you shop for. In the final analysis, we actually agree with “Dr. Scrooge” about the sum total wasted spending. However, our conclusion about what to do about it is very different.
Some background for nerds: In economic terms, gifting for a “hard to shop for person” is a failed market due to informational asymmetry – in other words, sometimes you don’t have a clue of what a good gift would be for that person.
Dr. Waldfogel argues that the solution is gift cards, which would allow the transfer of capital efficiently, but be less crass than cash. That solution ignores the reality that gifts contain both an economic and an emotional component. And while not as “crass” as cash, gift cards are not exactly emotional – unless the emotion is an urge to spend $50 in one go at The Gap.
We think the more realistic and effective solution is to share all the needed information efficiently, then the knowledge would no longer be fragmented – it would be shared and all gifters would benefit. They’d be able to skip the gift card and head straight for a gift the receiver wants.
The average price per gift in the USA is $50. Giftovus has found that when everyone starts talking about the gift receiver the average price of the gifts given drops to $33.40. That works out to 33% less for a gift developed socially. At the same time, gift receivers report a high satisfaction level.
We believe the savings are derived from the following: