Twas just days before Christmas, and all round the world...
Millions of people were steadfastly ignoring the wise advice of The Hitchhikers Guide to the Galaxy and hitting the panic button. Hard. And spending large sums on last-minute Christmas presents. Are the more lavish presents worth the added expense?
According to a 2009 Journal of Experimental Social Psychology paper by Francis J. Flynn and Gabrielle Adams titled Money cant buy love: Asymmetric beliefs about gift prices and feelings of appreciation, they might not be. I had a chance to speak with Professor Adams, now at the London Business School. She said that while gift givers aim to please the recipient by matching their preferences, they dont have to spend as much as they normally do to get friends and family members gifts they will really appreciate. According to Professors Flynn and Adams, at most of the relevant margins it really is the thought that counts and not the price tag.
In another post that makes my economists heart grow three sizes, Matt Yglesias explains the economics of gift-giving. People tend to systematically over-estimate the degree to which they value stuff and under-estimate the degree to which they will value experiences.
Art Carden is a Research Fellow at the Independent Institute in Oakland, California and an Associate Professor of Economics at Samford Universitys Brock School of Business.