Saturday, December 20, 2014

The gift-giving of Robert Barro

“The Deadweight Loss of Christmas” is the sort of academic paper that makes ordinary people think economists are kind of crazy.

"I find that holiday gift giving destroys between one-third and one-tenth of the value of gifts,” proclaimed Joel Waldfogel, then an economics professor at Yale, in the 1993 paper. He estimated that ill-chosen gifts caused between $4 billion and $13 billion a year in economic waste; for comparison, he cited an estimate that put economic costs of the income tax at $50 billion. ...

But one thing I learned from growing up around economists is they do not always live up to their provocations. For example, my economist father, who taught me as a young child that voting is irrational because your odds of affecting the electoral outcome are infinitesimal, votes. And Mr. Waldfogel, who went on to write a book called “Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays,” actually does buy presents at the holidays, at least for some people. ...

Since it’s almost Christmas, I called up the economist I know best to get his perspective on gift giving: My father, an economics professor at Harvard. My dad says his approach to gifts is to try to buy something that the recipient didn’t know he or she wanted. And the Robert Barro record on this is instructive, because it is mixed.

Sometimes there are big hits: This Christmas he found a book of John Wesley sermons published in 1825, a perfect gift for his wife, Rachel, who is deeply interested in the history of Methodism, but most likely would not have found the item herself.

On the other hand, let’s evaluate the box of fancy chocolates he and Rachel sent me for Christmas this year.

There are three ways to evaluate this gift. The first level of analysis is that I’m on a diet and certainly would not have bought the chocolate myself, which suggests this was an example of what Mr. Waldfogel warned us about: gift mismatch leading to deadweight loss.

The second level of analysis is that I’ve already eaten half the box, which demonstrates my revealed preference for chocolate, and shows my father achieved exactly what he set out to do: He identified an item I would not have bought for myself but apparently wanted.

The third level of analysis considers the fact that I now feel I should not have eaten the chocolates, or at least not so many of them in two days. ...

My father, who is not a behavioral economist, would surely reject this last analysis and say if I ate the chocolates, that must have been the rational thing for me to do; therefore, the chocolates were a great gift. ...

It’s true that Americans have taken to gift cards...

But not all economists agree that this is a valuable technological advance.

“It seems clear to me that a gift certificate is inferior to money,” says my dad. Which means there is more chocolate in my future.
--Josh Barro, The Upshot, on revealed preferences of economist fathers