Should you bother to give gifts?

Short of time? Click here to read the key takeaways.

🎁 Some economists argue that gift giving may destroy value. Because givers rarely know recipients’ preferences as well as they know their own, many gifts are worth less to the recipient than the money spent, creating what economists call “deadweight loss.” One estimate suggests billions of dollars in value are lost each holiday season.

💸 However, the “market value assumption” may miss the bigger picture. Economists assume that a gift’s value equals what you’d pay for it yourself but that ignores the emotional and social benefits gifts bring, such as surprise, connection, and feeling cared for. These forms of value often exceed the item’s price.

💞 Gifts have social and symbolic worth beyond money. Research shows that gifts can strengthen relationships, communicate affection, and build trust. The thought and effort behind a gift can transform it from a simple economic transaction into a powerful act of social bonding.

🧠 For some, giving gifts is rational because it brings joy. Many people find satisfaction in generosity itself: the process of choosing, giving, and showing love or appreciation. In those cases, the pleasure of giving may outweigh the cost, making gift giving a rational and meaningful choice.

🤝 But opting out can also be rational. If gift giving feels driven by pressure or obligation rather than connection, some people may be better off skipping it. Focusing on other ways to express care or appreciation can sometimes preserve relationships more effectively than exchanging presents.

Every December, billions of dollars worth of value is destroyed by well-meaning people engaging in the deeply irrational custom of giving gifts. Well, that’s what some economists have claimed anyway. In this short article, we take a quick look at their argument and some responses, to help you answer the question: Is it rational to give gifts? 

In the spirit of the season (and in case you decide that gift giving is rational), we’ve also put together a list of suggestions we think could make great gifts. Scroll down to explore them - any purchases through these links will help to support our mission.

Why is Giving Gifts Irrational, According to Economic Theory?

For the most part, other people don't know your preferences as well as you, yourself, know them. So, when your cousin gives you a gift that she spent $20 on, she probably isn’t giving you something that you would have spent $20 on for yourself. According to some economists, this means its value to you is less than the value of the money that was spent on it. If you would only have been willing to pay $15 for the gift (which was bought for $20) if you bought it for yourself, then $5 of value has been destroyed!

In a now-famous study, Harvard economist Joel Waldfogel surveyed 144 students about gifts they had received, to estimate the amount of value "lost" at Christmas time, by people giving and receiving gifts worth less to the recipient than the price paid by the giver. He concluded that “between a tenth and a third of the value of holiday gifts is destroyed by gift-giving.” He then used that estimate to calculate:

“[T]he deadweight loss of 1992 holiday gift-giving was between $4 billion and $13 billion.”

In today’s money, that’s between $9 billion and $30 billion. And that doesn't even factor in the value of the time people spend shopping for gifts and the stress that many people feel when doing so. 

It’s important to acknowledge nuance here (as in almost all things). There are some conditions under which even the most miserly of economists can see rationality in gift giving. For example:

1. When the giver has excellent information about the preferences of the recipient. In those cases, you can expect the amount that the recipient values the gift to be close enough to (or even more than!) the monetary value that was spent on the gift.

2. When the gift is a donation to charity, or something else that helps others. In these cases, the value isn’t limited to the satisfaction of the recipient’s preferences; it also includes whatever good is done by the charity with that money.

But most instances of gift giving do not meet either of those conditions. Thus, most instances of gift giving involve the needless destruction of economic value. According to the economists’ argument, that’s what makes giving gifts irrational.

But Is Giving Gifts Actually Irrational?

The economists’ argument depends on the claim that: Often, a gift you receive is worth less to you than the value of the money that was spent on it. But is that really true? It might seem true when you’re given some useless gadget or trinket that you know will just sit in a cupboard forever by a family member who doesn’t know you very well. But let’s take a closer look. It’s a claim premised on this assumption:

The Market Value Assumption

When you receive a gift, the value to you of receiving it is equal to the amount of money you would have spent on buying it for yourself. 

In the worst cases, you receive something you don’t want or will never use, so you wouldn’t have spent anything on it, and receiving the gift has no additional value to you beyond the item itself - so its value to you is $0. But of course, when someone gives you a gift, you’re receiving more than just the item itself. Even if the gift sits in a cupboard forever, you’re often also receiving things like:

• The pleasure of surprise and novelty

• The enjoyment of feeling seen or known by the giver

• The enjoyment of the traditional ritual and communal activity

• A sense of belonging or social connection, or of feeling loved or cared for

• Strengthening of social or familial bonds

• Information about how the giver perceives you (what they think you like or deserve)

• Information about the strength and closeness of your relationship

• Information about who remembers you and who invests effort in you

• A signal of commitment and future cooperation (building ‘relationship capital’)

And more. If you value any of those things, then they will add more value to your experience of receiving a gift, rendering the Market Value Assumption false. Waldfogel argues that these social or sentimental sources of value can’t make up for the loss of monetary value, but researchers like Morgan K. Ward and Cindy Chan have argued the opposite, saying that “the symbolic meaning and social value of a gift can far exceed its mere physical attributes and monetary worth.” If you take their view, it’s quite reasonable to hypothesize that many people experience enough value in the total experience of receiving a gift to make up for whatever difference there might be between (a) the amount of money the giver spent on the gift and (b) the amount of money the recipient would have spent on it.

On top of that, many people enjoy giving gifts. For those people, there is joy in choosing something meaningful, being generous, and affirming a bond. That joy may well be worth more to them than the money they spent on the gift itself. In which case, any value you get when you receive it is a bonus! Even if it’s far below the value of the money spent on the gift.

Those who reject the economists’ argument might do so by saying that these extra sources of value (to the giver and the recipient) can make giving gifts rational.

On the other hand, there are some people who give gifts mainly out of social pressure or tradition, who may be better off opting out of doing so. It's possible to get stuck in a pattern of mutual expectations that does actually leave everyone worse off. Some couples, for instance, who prefer to express their love to each other in other ways and don't tend to value gifts in the first place, make the choice to no longer give each other gifts. If there are ways they can better invest their time and money in strengthening their bond and making each other feel valued and cared for, rather than giving each other gifts, it can be rational in some cases for them to consciously give up gift giving.

(Rational) Gifts You Can Give

If you want to give some rational gifts this holiday season, we’ve got some ideas for you. Proceeds from purchasing any of these items go towards our mission to effectively improve society by helping people boost their critical thinking, improve their decision-making, and make positive behavior changes.

• Life-Changing Questions Deck: A card deck of evidence-based prompts designed to spark introspection, deepen conversations, and find clarity when feeling stuck.

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• Professionally Designed Personality Profile: A visually appealing PDF that outlines your key traits and offers science-based tips for leveraging your personality more effectively in everyday life. Pro tip: You can ask the person you're giving the gift to go through the test, then use this tool to generate their professionally designed report in PDF.

• Guiding Principles Poster: A beautiful customized poster for your wall if you want to keep your life principles in mind throughout the day. The user must go through the tool and, at the end, choose to purchase a printed version of their poster.

• Kitted Decks: A set of physical card decks and online tools to help you upskill your strategic, creative & critical thinking skills to stay ahead in the "post-AI" world.

• Ground News Subscription: A platform that makes it easy to compare news sources, read between the lines of media bias, and break free from algorithms.

If none of these gifts feel right but you’d still like to support our work, consider becoming a Clearer Thinking Supporter and get exclusive perks and a heartfelt thank-you from our team.