Is your Christmas an orgy of value destruction?
When you look around at Christmas, do you see an orgy of value destruction? Professor Joel Waldfogel of Wharton Business School does, and he's written a book about it -- Scroogenomics.
His idea is this: I know my preferences better than you or anyone else. So I can spend £50 on something for myself better than you can. In fact, I'll only spend that £50 if what I'm buying is worth at least £50 to me. You, on the other hand, might spend £50 on a present for me that I'd only value at £30.
Bah! Bumbug!
And there you have it, value destruction, or the 'deadweight loss of Christmas'; we'd all be better off not buying presents and spending the money on ourselves. According to Waldfogel, about 20% of the $145bn spent globally every year on gifts -- a conservative estimate, he says -- is wasted.
And 20% of $145bn is a lot of money. Enough to eradicate malaria, for example, which kills more than a million people annually. Enough, even, to recapitalise a small bank.
But Waldfogel is not implying that all gift-giving involves waste. In the case of children, he says we do a pretty good job of getting it right. And besides, a young child's sense of the value of money is not as well developed as an adult's (although I'm know some adults whose behaviour might challenge that view).
And even if an adult tells us what he wants, if he really wanted it wouldn't he have bought it already?
The dismal science
We also need to consider the value created by the joy of giving. His answer to this, though, is that we could still have that joy by giving a gift that the recipient actually wants -- he's quite positive about gift certificates, which are not quite as cold as cash. And there are wishlist websites such as WhatToGive and DreamBank that attempt to close that gap.
Even though others have questioned his survey techniques, I think he may have a good point. But if he does, it's a point I'll choose to disregard. I'm not convinced that the dismal science can really put a value on a token of affection.
Wishing you all a happy, and not entirely rational, Christmas.
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