Merry Deadweight Loss Day

image from Jason Welker)

Christmas is an economist's least favorite holiday. I first wrote about this exercise in value destruction in 2009:

Christmas doesn't jive with classical economics. Why? Economists assume that within the constraints of your resources, wanting something and buying something are the same thing. In an economist's world, if a book is worth $10 to me, and I have $10 to spare, and that book can be bought for $10, I'm going to buy that book. Gift-giving forces someone else to estimate how much things are worth to us, and since it's almost a given that the givers don't perfectly know the receivers' wants, everyone ends up with something sub-optimal. The difference between the value of the gifts you get, and what those gifts are actually worth to you, is the deadweight loss of Christmas.

And again in 2011:

An economist's hierarchy of gifts:

  1. Cash
  2. Gift cards (usually worth about 10% less than cash based on the market)
  3. Gift of the receipient's choosing (subtract a few percent for the chance of buying the wrong item, and the awkwardness of telling someone what to buy you.
  4. Gift of the giver's choosing.

One exception: getting someone something they don't know they need. For example, I got my mom a Roku box so she could watch Hulu or Netflix on the TV without dragging her computer into the living room and plugging it in. I've been given kitchen gadgets that seriously improve my life, but would have never thought to buy on my own.

Related reading:    

Anyway, happy Jesus day / slightly late solstice / very late hanukkah! May your deadweight losses be small and your marginal utility constant.