Holiday Shopping Tips From Behavioral EconomistsCass R. Sunstein
Nov. 28 (Bloomberg) -- Behavioral economists study human errors. People don’t always make the best choices for themselves, so there’s good reason to doubt whether they will always make the best choices for others.
If you’ve ever received a useless gadget, a horrendous tie or some kind of bowl, you’ll know that when people buy Christmas presents, they can blunder badly. Chances are pretty good that whatever you end up getting people this year, and however hard you try, some of your friends and family members aren’t going to think that the gift is worth what you paid for it.
University of Minnesota economist Joel Waldfogel, author of “Scroogenomics,” finds that Americans spend about $65 billion on winter holiday presents every year -- and that many of those billions are simply wasted, because a lot of people don’t much like what they get. Typically the value of a gift, to the recipient, is about 20 percent lower than its cost. He describes the holiday season as “an orgy of value destruction.”
Mis-giving is a big problem for givers as well as recipients. In a large survey, the average respondent was found to give 23 presents every holiday season. Gift-giving can also take an economic toll. Personal debts tend to jump after December. That isn’t ideal, especially in hard economic times and if recipients aren’t thrilled with what they get.
Here are some tips for gift-givers, building on six behavioral findings that bear directly on holiday-season mis-giving. They might help you get through December a little better.
-- Egocentric bias: If you are like most people, you have an exaggerated sense of how much other people are like you. You probably think their tastes and values are closer to yours than they actually are. Suppose you covet that new “Star Wars” limited-edition watch, or think your life would be immeasurably better with a fishing rod. Even if so, your spouse or your best friend might not much want those things. Beware of thinking that other people will like what you like.
-- Focusing illusion: When people focus on a product or an activity, or on a single feature of a situation, they tend to think that it matters a lot more than it does. For example, people in both California and Iowa have been found to think that people in California are happier than those in Iowa (which isn’t so). The reason for the mistake is that people focus on the most salient difference between California and Iowa, which is the weather, even though a warmer climate doesn’t much affect people’s happiness.
The same can be said about holiday gifts. People have a tendency to focus on an eye-catching object that produces an immediate “wow!” when it is given, but that goes promptly into the desk or the closet, never to emerge again. The solution? Give serious consideration to gifts that people will actually put to daily or at least weekly use.
-- Projection bias: When people are hungry, they tend to order a ton of food, even if they are not going to eat all or even most of it. People know, of course, that their tastes will change over time, but they project their current emotional state into the future and thus underestimate the magnitude of the change.
On frigid days, people buy clothing that is needed in cold weather, such as parkas and winter coats. That’s fine as far as it goes, but they sometimes buy more than they need. The return rate is unusually high for cold-weather products bought in low temperatures. For gift-givers, the lesson is clear: Don’t be unduly influenced by how you feel on the day that you happen to be shopping.
-- Optimistic bias: Human beings tend to be unrealistically optimistic. Most people think they are better than the average driver and less likely to be involved in a serious accident. When people give presents, unrealistic optimism goes off the charts. We are often amazed that people don’t love what we’ve selected. Please don’t be. (And please consider avoiding the optimistic exclamation, “You’re going to love it!”)
-- Cumulative-cost neglect: People often borrow too much because they neglect the cumulative costs of individual expenditures. If you use your credit card to purchase 20 sensible gifts, you might be alarmed by the total expense. When gift-givers don’t keep at least a rough running tab, they may find that they have spent a lot more than they expected, or even can easily afford.
-- Spotlight effect: If you are like most people, you think that people are watching you far more carefully than they actually are. In one experiment, students were asked to go into a classroom wearing a shirt with a picture of Barry Manilow on it (which is pretty embarrassing). Those who wore the shirt greatly exaggerated the number of people who actually noticed the picture. Most people didn’t.
For the holiday season, many of us focus too intensely on how other people will react to what we get them, when it may be the mere existence of the present, rather than exactly what it is, that most matters. Unless you are dealing with someone who really cares about what you get them, you should worry a lot less (and maybe spend less, too).
A few years ago, my sister declared a family moratorium on Christmas presents for anyone over 15 years old. We all celebrated. Other people, including Waldfogel himself, have suggested a different solution. Instead of giving people more gadgets, ties or bowls, tell them that this year, you’re going to make a donation in their name to a charity of their choice. Can you think of a better way to show the spirit of the season?
(Cass R. Sunstein, the Felix Frankfurter professor of law at Harvard University, is a Bloomberg View columnist. He is the former administrator of the White House Office of Information and Regulatory Affairs, the co-author of “Nudge” and author of “Simpler: The Future of Government,” forthcoming in 2013. The opinions expressed are his own.)
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