Seasonal advice from the dismal science, Part 2 of 3

Gift-giving advice today...

Do not buy gifts for nieces, nephews or grandchildren. Send money if you must, but other gifts will be spectacularly incompetent. Using questionnaires, the Joel Waldfogel famously revealed (in an article entitled ‘The Deadweight Loss of Christmas’ - JSTOR) that the typical $50 gift is valued at between $35 and $43 by the ungrateful recipient, but that gifts from grandparents, aunts and uncles were even less welcome. If you are content to spend $50 to provide $35 worth of pleasure to your distant relatives, then next time please use me as your middleman.

It’s the thought that counts. His detractors rarely admit this, but Professor Waldfogel explicitly asked his subjects not to consider sentimental value. Sentimental value might indeed outweigh the waste of a poorly-chosen tie, but the cheaper the tie the more likely that is to happen. A $50 tie valued at $40 by the recipient is still a good gift if it also creates $15 worth of warm fuzzy feelings. But think how much better it would be to give a $5 tie valued at $4, which still created the same $15 of fuzzy feelings: this is a much more efficient way to produce a smile.

Actually, maybe it’s better if you don’t give anything at all. Steven Landsburg reminds us that one of Christmas's greatest philanthropists was Scrooge. His miserly refusal to eat a Christmas turkey, year after year, meant one more turkey that someone else could afford. His capacious bank account meant that money was available to lend out to entrepreneurs and kept interest rates low. There’s nothing wrong with spending money if you’re going to enjoy it, but if it’s going to be frittered away on chintz then you couldn’t ask for a better role-model than Scrooge.

Tomorrow: making those New Year resolutions stick, surviving the sales, and why Alan Greenspan should replace that soft fool Santa Claus.