Tuesday 25 December 2012

Non-essential Book Review: Scroogenomics

Scrooge says: Hoarding is so much more fun than gift-giving!

This is a nice time of year to be a practicing Tight Fister. Yes, this is the time of year when we can just sit  back and relax while out less enlightened friends waste their time and money in crowded, soulless temples of commercialism (aka shopping malls). While the subject of how to deal with gift-giving traditions has already been covered in old posts (here and here), a new book, Scroogenomics: "Why You Shouldn't Buy Presents for the Holidays," covers much of the same ground, adding some very light numerical analysis to the mix.

As all of you know, I would never recommend that anyone ever buy a book. Therefore, as my Christmas present to all of you, I'm going to just summarize the main points, and then none of you need bother to read it.

The main argument is that gift giving is economically inefficient. Common sense (and some experiments conducted by the author) tell us that on average, people value gifts around 20% less than gift givers spent on them. (I mean really, how much do you value your 37th tie?) So basically, the practice of gift giving creates gigantic waste in the economy, which the author estimates at $12 million.  Now, did you actually need a whole book to make that simple argument? Clearly no, but the author belabors the point for 186 pages.

There are a few interesting tidbits along the way. Although giving cash is clearly the most efficient gift, people don't tend to give cash due to a kind of 'cash stigma' perceived from cash gifts. For gift-givers who don't know the preferences of their recipients well (such as grandparents), their gifts tend to be the least efficient, and therefore tend to give cash more. Taking a bunch of questionable survey data, he estimates the 'cash stigma' to be equal to around $4 plus half the amount of cash given. Therefore a gift of $100 is valued at only $46 due to the stigma of receiving cash. Sucks, huh?

One way to square the circle here appears to be with gift cards. Well-planned gift cards can be a very good substitute for cash, but carry almost no stigma.

Well, there you go: ample reason to stop gift-exchanging. I know you will all take it to heart, because if can't trust a nerdy economist rambling on about efficiency, who can you trust?

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