Gasp! An Economist Misses the Point!


Since my very first semester of law school when I was introduced to the concept of Law & Economics by a zealous devotee of Guido Calabresi, I've been extremely skeptical about the wholesale application of economic principles to draw descriptive and normative conclusions about the law. It didn't take long for this skepticism to transform into outright rejection, though now my views on the subject are somewhat more nuanced. I'm still very skeptical, and I have little patience for lawyers and legal scholars who seem to believe that the only thing the judge needs is good old-fashioned economics (and there are many). At the core of this suspicion is the recognition that L&E necessarily makes a lot of unsupportable assumptions and disregards numerous factors that are important in terms of the real world but don't translate well into dollars and cents.

This skepticism has translated directly to a suspicion of pop economists, particularly the smug bastards who show up on NPR and Slate to tell the ignorant masses that buying french fries is stupid. I haven't read any pop economics books, but I'm sure I'd hate them with similar vigor. The latest example of why I hate this kind of discourse appeared on Slate this morning via the ham-fistedly overstated link "Economic Proof That Gift-Giving Is Pointless" (note: in keeping with Slate's general practice, the link title and the article title are different).

In this article, Joel Waldfogel claims that gift giving makes no economic sense because the value per dollar spent on gifts is less than the value per dollar spent on things you buy for yourself. According to Joel:

On average, a dollar that people spend for themselves creates nearly 20 percent more satisfaction than a dollar that someone else spends on them. Put another—depressing—way, gift-giving effectively discards 20 percent of the gift's price. So, of the nearly $100 billion spent on holiday gifts each year, one-fifth is effectively flushed down the toilet.

It doesn't take much digging to see that Joel has completely missed the point of gift-giving. He explicitly states, twice, that his analysis disregards sentimental value. This means that, in Joel's Kool Aid-chugging, Economics-as-God world, buying a gift for someone is exactly the same as doing someone's grocery shopping for them without asking them what they want first. Of course people are going to enjoy things that they picked out specifically for themselves more than things that have been picked out for them. The margin of error is definitely larger when buying something for someone else. But the utility of the specific item isn't the point of gift-giving. There are all kinds of extremely important, dare I say, sentimental dimensions of gift-giving that numberfuckers like Joel seem all too hasty to dismiss. How about doing something nice for someone you like? How about the ritual of participating in a holiday or family event? How about the pleasure of sharing such an event with someone by including them in a gift exchange? Is there room for these sources of satisfaction in Joel's world? No, because they're "sentimental."

Indeed, even a totally useless, gawd-awful gift that no one in their right mind would ever choose for themselves brings pleasure to the recipient. Dr. M and I still laugh over some of the ridiculous things we got for our wedding (and have gotten for Christmases and birthdays and such). These things have no economic value but they give us something to laugh about (hint: laughter is good).

So, I maintain my healthy skepticism toward economists who say that such-and-such commonly accepted social behavior is pointless because it turns a dollar into three quarters. There are some things I'm willing to "waste" money on, and sentimental pleasure is one of them.


It sounds like you have a beef with *bad* economics. A real economist would take sentimental value into account since it *is* valuable.

You seem to be saying that the point of the article is that gift-giving is economically stupid. This is certainly a conclusion you could draw from the data. But it's not the conclusion the author draws, because that would be a stupid conclusion.

He is only trying to make two points, both of which are supported by the data.
1. That consumers -- much maligned these days -- are still better at deciding their own preferences then external gift-givers. Perhaps this seems obvious. But to an Economist, quantifying how well people can 'know' their own preferences is an ongoing struggle.
2. Quantifying the degree to which consumers outperform gift-givers. From this, you can draw interesting inferences, such as:
2a. Closer relatives tend to give gifts with greater utility
2b. Distant relatives tend to recognize their inability to pick well, and thus get gift certificates.

Nowhere in the article, besides the headline, is gift-giving critiqued as BAD. Efficiency is not normative, it's descriptive. Distribution is normative. If pure efficiency was any Economist's goal, we'd be soul-less robots, free of love. Pure efficiency is just the yardstick we measure things by. Only by defining it can we come up with interesting metrics like those above.

Regardless of his ultimate conclusions (and I still think that the stupidity of gift giving is implicit in the paragraph I quoted), it's really dumb to "study" gift-giving while ignoring sentimental value. Sentimental value isn't the sine qua non of gift satisfaction, but it's an important factor. It's also a factor that's more difficult to quanitify than whether the subject would have picked out this or that particular toaster for himself.

It's not implicit. That's just your inference.

Sentimental value is important. It's also nearly impossible to measure. So Economists focus on the things that CAN be measured, because otherwise there would be nothing to do. The piece demonstrates pretty well that you can make interesting conclusions despite leaving out large parts of the whole. That's how modeling works -- you can still learn something by assuming a spherical cow, with a uniform distribution of milk. Didn't you learn about gravity by assuming away air resistance?

Economics is really a series of techniques and tools to derive data from the ultra-confusing morass of human affairs. I totally agree that there are many stupid people and Economists who take the models and assume they accurately describe the real world. Obviously they do not. Good economists -- and the Slate article is fully in line -- are far more humble.

Everything I wanted to say, Kevin said better. Except: Matt, is this a "War on Christmas" joke post?

Why are we capitalizing Economist? We don't capitalize Grammarian, and shouldn't they have first dibs?

Well in defense of Matt the "we can measure efficiency better than we can measure other things" argument Kevin is making is rather weak. After all, the utility someone gets from buying themselves a present is also pretty much impossible to measure - unless you assume things like efficient markets and that the price they pay is a good proxy for its value. But by making a similar leap of faith you could measure sentimental value the same way. Compare the amounts people pay when giving cash (presumably without sentimental value) with how much they'd pay for a present to the same person.

I think that some economists have a habit of sneaking normative preference into their supposedly descriptive analysis by simply declaring certain things “measurable” and certain other things “not measurable”. Even if they don’t mean to, an economist’s ideological paradigm can skew their analysis.

Engineers don't design airplanes on the assumption that air resistance doesn't exist. But I've met a lot of law & econ folks who are willing to adopt legal frameworks that they would apply to actual humans with actual problems based on a lot of ass-out-of-u-and-me premises.

It could be that I missed the nuances in Joel's article. But given that the was article posted on a general-interest website under a suggestive title, and claims gift-giving makes 20% of money disappear, I think my interpretation was the one they invited.

I'm sorry, but my main reaction to this whole article and discussion is disgust and a sense that people's time and attention would be more valuably and economically spent elsewhere. Toys for Tots, anyone?

That's kind of the point of a blog, though, isn't it? To waste time that might more profitably be spent elsewhere.

"I Fought The Law: Making Your Time Less Unwasted."

I might use that for Carthage, actually. Or maybe I'll stick with my format and just say "Carthage: And That's No Use."

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This page contains a single entry by hb published on December 20, 2006 9:54 AM.

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