What Should We Buy?

Mrs. Peel has a neat post on an economics article that deals with the dead-weight loss involved in gift-giving. She writes:

Basically, when you give someone a gift, you are increasing their wealth by the cost of that gift.  However, the recipient’s value of the gift – in economic terms, its utility – is not necessarily equal to the cost.  In other words, the recipient could possibly have achieved greater utility by spending the same amount of money (the cost) elsewhere; alternatively, the giver could have spent less money to provide the same utility to the recipient.

It is possible for a giver to provide greater utility than the cost if the recipient is uninformed.  For one example, say I asked for the Kindle 2, and after you asked me what I wanted from an ereader, you discovered that the Nook would be a better choice for me.  I had never heard of the Nook, so I was uninformed.  Therefore, your gift actually had a larger utility than I would have obtained by spending the same amount of money myself.

In general, however, recipients are informed, so the best a giver can do is equal the utility the recipient would have achieved.  This is commonly accomplished through cash or gift certificates.  Though the author did not address this possibility, it can also, as we have discussed in the comments here, be accomplished through wish lists.

That is an interesting article.  A couple things that occur to me: first, I think the idea of an “uninformed” consumer is much broader than laid out here.  I’m uninformed, maybe, about the best e-book reader, but I’m also uninformed about all sorts of things.  Contra Peel, I’m almost certainly generally not informed, relative to the collective knowledge of my associates.  For instance, I’ve seen a limited number of movies.  There are, literally, thousands of American movies I’ve never even heard of.  And I’m a movie buff.  If you buy me a relatively obscure movie, and you know me well enough to understand my tastes and interests, there’s a decent chance that you’ll be getting me something I’d love, but would have no reasonable expectation of encountering in the ordinary course of things.

Since I am movie buff, this is how I sometimes approach gifts; I’m pretty confident that I can get someone a movie they’d thoroughly enjoy, which is effectively beyond their reach.  And this is part of limited usefulness of utility; because getting someone something they’ll enjoy, but don’t possess the interest or expertise to come into contact with themselves, has a utility all its own.

It opens up new networks for one thing.  A few months ago I’d seen only three Alfred Hitchcock movies, when a friend pointed to an AMC marathon of Cary Grant movies.  I saw To Catch a Thief and adored it.  Now I’ve watched over a dozen Hitchcock movies and that has led me in all sorts of other directions.  To Catch A Thief probably wouldn’t crack my top 10 favorite movies (maybe top 20), but it had a value greater than the monetary amount I would have shelled out had I known it existed.

And I’d say this is particularly true when you’ve started to, sort of, exhaust a subject.  I’ve read so many books, I find that half the time, when I go in a bookstore, I can’t find anything new that even vaguely interests me.  And I can’t see any reasonably easy way to get information on whether or how much I’d enjoy these other books.  You know, if the book jacket isn’t doing it for me, where do I go?

I don’t begin to have the time to read a dozen pages of every novel.  Yeah, maybe things like Symantec Web will make this sort of search much easier, but that’s still early stages.  For now, I need people who know me, who maybe have a greater expertise but similar interests, to point me in the right direction and open up new pathways.

So I’d mostly suggest this: give what you know, not what they know.  If you don’t know clothes, and you don’t have any concrete thoughts on their opinion on clothes, don’t get clothes.  You can’t possibly buy them better clothes than they’d buy themselves- you’d have to become a whole new person to do so.  If you do know music, even if your thoughts on their opinion is vague, you might want to consider getting them music.  This might sound strange and counter-intuitive; some of the worst presents are sometimes variations on “this is my favorite thing and I demand you like it”.  And it seems somewhat egotistical.  But, I really think it’s the best way.  My little sis never read- ever- but I just kept on buying her books for birthdays and Christmas, and now she reads a lot.  Maybe I played a part.  I definitely seemed to do worse when I tried to cater to interests I knew nothing about.

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  1. Doug
    December 4, 2009 at 10:16 am

    It has to do with beauty.

    If you’re an expert in something it’s likely you’ve moved beyond your own tastes and are somewhat aware of innate beauty.

    Innate beauty (in a book, a movie, music or clothes) is more likely to transcend tastes than be limited by them.

    Gift cards can have this same quality.

    Some of my relatives give gift cards to restaurants. As a frequent traveler I will pass by their restaurant eventually even if it’s not in my city. However without the gift cards would I really stop there to try the food if I was in an unfamiliar city?

    There have been about 5-6 restaurants that I’ve developed appreciation for because of gift cards that removed my fear of wasting money on food I may not like.

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