Christmas edition: Evidence-based gift giving

As my readers know, I am not one for theories and vibes. Instead, I want data and evidence to support my investment decisions. Well, since Christmas in the 21^st century is no longer about vibes like ‘joy to the world’ and all that, but mostly about businesses trying their best to separate us from our hard-earned cash, I thought I bring the toolset of evidence-based investing to gift-giving. So, here are some scientifically validated tips for giving gifts.

Mo’ money, mo’ problems?

Many people fall into the trap to think that if they spend more on a present, it will be more appreciated. People who buy an expensive gift consistently overestimate how much the gift will be appreciated by the recipient. Meanwhile, if you ask the recipients, their reactions to more expensive gifts weren’t significantly stronger than to cheaper gifts. This is even true for engagement rings where the size of the rock is a simple indicator of the value of the gift.

This mental shortcut between money spent and perceived value leads to people overspending on gifts. A common way to deal with this is for families to set a limit on how much to spend on gifts. But this can be counterproductive. People treat budgets differently whether they purchase a gift or something for their own use. When buying things for themselves, budgets work because people are not only trying to stay within budget, but below the budget so as to get the warm feeling from having saved some money.

But when people buy a gift, the old ‘more money equals higher value’ shortcut kicks in, and people try to maximise their spending within the budget limits. The result is that people are willing to spend more money on the same things when buying them as a gift within a budget than when buying them as a gift without having a budget.

Willingness to pay for socks

Source: Choe et al. (2023)

Good news for people with two left hands

If you are like me, you hate wrapping gifts because you have two left hands, and it always looks like the dog helped wrap the present when it is done. What better then to have a gift professionally wrapped. Even better, why not go overboard with the wrapping to show how much care you have taken in selecting the present? Indeed, gift-givers tend to use elaborate packaging as a signal to the receiver how much effort they have put in selecting the gift.

This, apparently, completely backfires. People who receive elaborately packaged gifts tend to surmise that the gift-giver has put more effort in considering the wrapping to elaborate an otherwise thoughtless or low value gift. The difference in perception is particularly large at occasions when gift giving is customary like birthdays and Christmas and when the gift-giver and the receiver are not closely related. Better to have an average gift wrapping or wrap it by hand than to go overboard with the wrapping.

Experiences > stuff

By now it is widely known that people value experiences more than they value stuff. This experiential advantage is by now well-documented in psychological research. Interestingly, though, the closer the relationship between the giver and receiver the more likely the giver is to choose an experiential gift over a material gift. This is likely the case because the gift-giver and gift-receiver are more likely to do things together and create positive memories from the gift.

Likelihood to choose an experiential gift depending on social closeness

Source: Yang et al. (2021)

Long duration gifts are better

One benefit of experiential gifts is that they last longer. They make the recipient remember the gift-giver later when they enjoy the experience. I have written a post before on how the best gifts that makes us happiest are ones that combine material happiness with experiential happiness (like a swimming pool).

Highest happiness items

Source: Weingarten et al. (2023)

However, when you ask people who are buying gifts for others how they choose the present, they tend to emphasise the moment of giving the gift. Hence, people choose gifts with a ‘wow factor’ or novelty items that surprise the recipient. That is the equivalent of the sugar rush we get after eating ice cream. The better gifts are the ones that have long-lasting use. A coffee machine will likely be appreciated for longer than a painting. Just don’t try to buy something that is a novelty item with long lasting use like, say, a cuckoo clock…

Sentimental gifts work even better

Speaking of art works as gifts, many people are reluctant to buy someone a sentimental gift like a framed family photo or an object that reminds them of a past vacation, etc. This is a mistake because it prevents them from making some of the best gifts possible. Research has shown that the receiver of a present rates it much higher if it has sentimental value, partially because it is highly personal and reflects well on the thought and care the gift-giver has put into selecting the gift. Plus, sentimental gifts make people happier for longer.

Sentimental gifts make people happier for longer

Source: Yang and Galak (2015). Note: SV = Sentimental Value.

Give them what they want

How boring to ask someone what they want for Christmas and then buy it for them. That is the antithesis of a thoughtful gift. But think about it this way, at least the person gets something you can be sure she likes (and it usually is a ‘she’ who needs to give her partner a clue as to what to buy for Christmas).

Francesca Gino and Francis Flynn showed in a series of experiments that gift givers tend to appreciate requested gifts less or at best the same as unrequested gifts. But unrequested gifts are remarkably often gifts that are not that appreciated by the recipient. The result is that on average the receiver of a gift appreciates a requested present more than an unrequested one.

Strangely, if the list of requested items is shorter, the gift-giver tends to appreciate the requested gift more because he (and I repeat, it mostly is a ‘he’) knows that the gift will be appreciated. The receiver, on the other hand doesn’t appreciate a requested gift less just because it may be the only gift on the wish list…

Appreciation of requested and unrequested gifts

Source: Gino and Flynn (2011).

Don’t just give on Christmas

And finally, while I write this before Christmas, don’t just give presents to your loved ones on special occasions like Christmas, birthdays or wedding anniversaries (note for husbands: wedding anniversaries are important; don’t forget them).

Gifts given outside of special occasions are unanticipated and signal to the recipient a much larger degree of care and consideration. And since these notes are typically about economics think about this result from a study on random gifts: a $5 Amazon gift card on a random Tuesday has the happiness equivalent of a $50 Amazon gift card on a birthday.

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I wish you all a happy Christmas and I will see you again in the new year.