The Hindu Business Line : Do we gift what they don't want?

THIS can make you stop in your tracks while shopping this festive season for the right gift to give your friends and relatives, colleagues and contacts, clients and clerks: That they're not going to like your gifts as much as what they'd be buying themselves.

Well, there's an old saying, "Don't look a gift horse in the mouth." But Joel Waldfogel breaks that taboo and goes into the mind of the gift recipients. What does he find? That we give as gifts items less desired by recipients than own purchases. Or, to put bluntly, we gift what they don't want.

Joel's recent research paper, titled `Does Consumer Irrationality Trump Consumer Sovereignty?' presents evidence "based on a survey of 1,044 gifts, 538 own purchases, for 202 college students at three US universities" to prove that consumers' own purchases generate between 10 and 18 per cent more value, per dollar spent, than items received as gifts. Joel's question to respondents was: "What is the minimum amount you would require to give up the item, assuming that you could not get an identical replacement for as long as it would have lasted? Ignore sentimental value for this."

It is believed that gift givers who know the recipient's preferences can choose items more highly valued by recipients. Joel points out that some studies have even shown "higher yields for gifts from givers in more frequent and intimate contact with recipients." Which means that before giving the right gift, you may have to get close! But wait, evidence in the paper doesn't support such a belief.

If what you choose for others is going to be less satisfactory to them than what they can choose for themselves, what's the point? That does hurt, so we can soothe ourselves saying that we're not soothsayers to know others' minds; that we give gifts more for our own satisfaction than theirs; and so forth. Problem comes only when we think that it is rational to be satisfied immensely with gifts.

The bitter truth is that we are not rational. "People are myopic in their decisions, may lack skill in predicting their future tastes, and can be led to erroneous choices by fallible memory and incorrect evaluation of past experiences," is how Daniel Kahneman explains. We have trouble predicting what we will like. Also, we have trouble remembering what we liked. "Subjects' recollections are not based on the entirety of an experience; rather they tend to be based on the best or worst parts, as well as the last parts of experiences." Memory bits, so to say.

Joel informs that scholars working on `the border of economics and psychology' have assembled an impressive body of evidence that consumer behaviour in a large number of laboratory and real-world contexts is not fully rational. For instance, Sendhil Mullainathan and Richard H. Thaler have argued, "Relative to a rational benchmark, actual behaviour is constrained by bounded rationality, bounded willpower, and bounded self-interest." The best-known failures of rationality happen in intertemporal and probabilistic choices, such as saving and financial decision-making. Despite that, consumers are better at current consumption choices for themselves than others.

On http://knowledge.wharton.upenn.edu there is a discussion of a 1993 paper by Joel, titled, `The Deadweight Loss of Christmas.' He had asked participants in that study "how much they valued items they received as gifts". To the chagrin of many readers then, the finding was that 13 per cent of the value of what gift givers gave was destroyed by choosing the wrong things. To balance, there have been studies that challenge Joel's inference, and prove that gifts are more valuable to recipients than the sticker price.

"It is possible that gift-giving achieves some benefit for society that cannot be achieved by other means," is how Joel concludes his paper. However, to make up the loss of value in the recipient's hands, I guess you may be better off buying gifts at 18 per cent discount.

SayCheek@TheHindu.co.in