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Your Non-Rational Holiday Gifting Habits Are Officially Driving Behavioral Economists Crazy

December 18, 2019, 5:30 PM UTC

Your holiday shopping list includes your admin, your boss’s admin, your daughter’s soccer coach, your sister’s boyfriend (who seemed very nice when you met at that dinner and will be at Christmas this year), and then Diane from the office thought it would be fun to institute a Secret Santa exchange at what is normally just cookies and Martinelli’s in the conference room. 

Diane also made the rule of no Starbucks gift cards, which, well, you’re pretty sure that’s what you gave the soccer coach last year, so wait, is that not okay anymore? Oh, and there’s also your immediate family. 

It’s that time of year when holiday gatherings pepper our calendar and the list of gift recipients seems to keep growing. Whether we address it in a fit of efficiency by ordering everyone a neck warmer or shred our cuticles by searching out the most personal items, we are probably doing it all wrong. Also, we are driving behavioral economists crazy.

Gift giving can be inherently contradictory—it’s guessing what someone wants or reducing the gesture to little more than a transaction. But at its core, gift giving is supposed to demonstrate care and function as a building or deepening of a relationship. Giving someone a gift is not just the value of the gift itself, but also “the expression of caring and value that happens interpersonally, which makes gift giving such a critical part of all of our social relationships and certainly on occasions such as the holidays,” Wharton professor of marketing and psychology Deborah Small says. 

And yet, performing this relationship building is almost certainly a fool’s errand because how can we know someone’s preferences, even those closest to us, better than they know their own? “Gifts are basically a non-rational way to deal with money because I’m predicting your preferences, but I don’t know what they are exactly and now I’m going to transfer that into a gift,” explains Kristen Berman, a behavioral economist and co-founder of Irrational Labs. Which is why from a purely economics standpoint, gift giving is inefficient and wasteful—so much so that most economists this time of year will reference the seminal paper, “The Deadweight Loss of Christmas,” published in 1993 by then Yale professor Joel Waldfogel, which estimated that poorly-received gifts created up to $13 billion in economic waste.

The rest of the social science fields recognize that the utility value of a really good or even decent present can overcome the potential drag of waste, the threat or pressure of which propels many a gift giver to, in Berman’s view, inadvertently eliminate gifts’ very purpose. “Gift cards are almost as close to cash as possible” and when the purpose of a gift is to signal that you care about somebody, the closer the gift to its actual monetary value, so you’ve “basically entered into the cash world.” In Berman’s book, showing up with wine or chocolate is less overtly transactional, but still playing it too safe, demonstrating you care somewhat, but with no risk taken, “nothing that says, I know something about you and I’d like to make your life easier or I’d like to make you a little bit happier in the morning,” she said. Safe gifts serve a societal norm, they tick the box of an offering, “but they don’t go all the way of strengthening the relationship.”

When gifts are wildly off the mark

The opposite but equal pitfall to playing it safe is the specialized gift meant to demonstrate how well you know someone, but is wildly off the mark or merely demonstrates more about you, the giver. Gift givers tend to think about what makes the recipient unique or special and they want the gift to signal how well they know someone’s idiosyncrasies, but the more unique or specialized the gift, says Small, the increased likelihood the giftee would have done a better job at picking it out themselves. “In reality, there are differences in things that we like, but there are things all of us like a lot and those things get neglected,” she said.

Additionally, when the giver is planning the unique wow gift, they can be subconsciously more focused on the moment of opening, rather than the actual use for the recipient—much like the transaction utility, or how good a deal seems to a shopper at point of purchase, compared to its consumption utility, or the actual usefulness of the product. Small said that retailers have a deep understanding of how consumer behavior is impacted by sales or the perception of deals, which can spark a high voltage transaction utility moment, but fizzle out at the actual consumption utility. The wow gift can get a big reaction, but then sit like an untouched shopping bag in the closet.

Behavioral scientists agree that inherent to gift giving and its core purpose is taking some risk. You are predicting or guessing at preferences—the color of a sweater—which may be what the beneficiary would have chosen, or end up introducing them to something new. Plus, there is now the ubiquity of gift receipts, which Small said can be useful when tucked inside the box to quietly signal that you chose something but understand if it doesn’t exactly work, but under no circumstances should be made salient to the receiver at the point of giving, Berman emphasized.

The gift of experiences

Berman said that giving someone an experience—buying tickets to an event or dinner at a nearby restaurant—is a thoughtful way to signal you know what they will like and can do double duty if it includes you. “If the point of gift giving is to enhance relationships, I think people under prioritize giving the gift of their own time in order to strengthen the actual relationship,” she said. Additionally, removing planning or decision making—often the last thing busy people want to think about when they have a moment to slow down—can be a gift in itself. “You don’t even have to buy the concert ticket, you can just say, ‘Oh, I’ll just plan an evening for us together’” or organize a sitter and take your friend for a day in the park, Berman suggests.

You can apply this same principle to gifts for co-workers or people you don’t know as well or maybe not even like all that much. Berman said we have deeper insights about the people around us that we think we don’t know well—you know they hate getting up in the morning or that their kid plays soccer. So while socially acceptable gifts like mugs are expected but boring, there is an opportunity for a creative moment, like giving a gift card to Audible and a recommendation to a book you loved or some really nice coffee with the mug and a card that references their loathing of the alarm. These are smaller gestures, personal without being too risky, that show you notice something important to that person and signal how you want the relationship to evolve. And with someone that you don’t particularly care for, Berman advises choosing a gift that signals something you appreciate about their work or admire. “A gift is much easier than an apology,” she notes. 

And then there is the gift that is extremely high in transaction utility and risk, but the nadir of consumption utility and for which there may be no apology.

Years ago, Elaine Faretta and her husband went with their friends, another couple we’ll call Devin and Shelly, to a farm in the Bay Area to cut Christmas trees. It was a crisp, bright Friday after Thanksgiving, just sunny enough to eat lunch at the farm’s outdoor picnic tables. Nearby, the foursome spotted another tree cutter’s teacup Chihuahua puppy scampering around and Elaine, with her husband the only couple in their larger friend group without children, joked, “Gee, if I’m never going to have kids, maybe I should get a dog!”

A few weeks later, Devin and Shelly hosted all their friends for their annual Christmas gift exchange. Shelly thrust a box into Elaine’s lap, beaming while Elaine unwrapped a ceramic bowl and collar. Elaine looked up quizzically at Shelly at the same moment that Devin was sneaking up the basement stairs, leading a full-grown American Eskimo dog. 

Elaine and her husband were so stunned, “we ended up taking it home that night and I was sick to my stomach.” (Years later, when she suffered from postpartum after having her daughter, she recognized it as the same feeling). The American Eskimo was a standard, closer in size to an ottoman than a teacup, and covered in long, thick fur you could lose a hand in. They kept the dog for two days, well into an extended asthma attack for her husband, at which point, Elaine drove it back to Devin and Shelly’s. Devin and Shelly promptly gave the dog to Devin’s sister, who named it “Annie,” after the orphan.

Driving home the final point about holiday gifting, which is, when all else fails, there’s always re-gifting.

More on holiday shopping from Fortune:

—5 of the best last-minute gift ideas you can get before Christmas
—Give these world-class experiences as gifts this holiday season
—Tiny tech gadgets great for stocking stuffers
Travel must-haves to give your favorite globe-trotters
—The best books to gift people you know well—and people you don’t
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