What Can Economics Teach Us About Gift-Giving?

santa-12-20-11-lgFrom George Loewenstein and Cass Sunstein writing at The New Republic:

Behavioral research on perspective-taking provides some explanations for why gift-buying is often such a waste of money. When people try to predict how another person will respond to a certain situation, they begin by imagining how they themselves would respond, and then they make adjustments for differences between themselves and the other person. At both stages, they make big mistakes….

Luckily, behavioral economics provides some straightforward lessons for gift-givers. Don’t assume that other people like what you like. Beware of projecting your current mood onto your purchasing decisions. Avoid unrealistic optimism: People probably won’t react as enthusiastically as you expect. Focus on gifts that will get frequent use, rather than immediate applause, only to disappear into holiday-season purgatory. And unless you are dealing with people very close to you, don’t assume that the gift will matter a whole lot. You’ll probably remember it better than they will.