Guest Post: The Deadweight Loss of Gift Giving

There is a pretty substantial amount of literature on the deadweight loss associated with gift giving. In short, when one buys a gift for $50 for someone but that someone does not like it and in fact would have only paid $10 for it, then there is of course a $40 deadweight

Some economists estimate the deadweight loss during the holiday season alone is roughly $13 billion in the US and $145 billion worldwide. On a net basis, this is of course viewed as a transfer of wealth form households to private sector businesses. (Note: net basis since some
of the money flows from businesses back to household employees who work at stores, etc).

So how to we rid ourselves of this deadweight loss without being complete scrooges? Well, cash and gift cards vastly reduce the deadweight loss, since gift receivers can use $50 to buy something they deem worth $50. There could still be some deadweight loss, think of a gift card to a store someone doesn't really like, or a person who attributes value to receiving a wrapped present versus cash.

Another potential solution, not surprisingly, is trade. In this story, kids at a Brooklyn school rated their satisfaction with gifts which in aggregate was around 50. After students were allowed to trade gifts with each other, that satisfaction jumped to 82 in aggregate.

A simple rule then is "if the value one attributes to receiving a wrapped present is less than the expected outcome of the deadweight loss, where deadweight loss is equal to confidence in gift choice (various probabilities) multiplied by the value the receiver atributes to the gift (various payoffs) all of which is then subtracted from the cost of the gift, then give cash." Gift receipts work too, but in order to return the gift we need to take gas prices multiplied by miles to store multiplied by...HAPPY HOLIDAYS!!!

Steven Quattry is a recent graduate of Columbia University's School of International and Public Affairs and works in macroeconomic research.



caps lock key abandoned

google's new laptop, the google cr-48, has no caps lock key. in it's place on the keyboard is a search button. as a further statement all of the printed letters on the keyboard are in lower case. this slate article goes through the history of the caps lock key. the article ends on the sentiment that capital letters may soon become obsolete all together to streamline language.


Park Slope Plane Crash

Brooklyn Based and the New York Times cover the plane crash that still remains fresh in many Brooklynites memories. As the Times writes:

It was 50 years ago this Thursday: Dec. 16, 1960. If you look closely, the signs can still be seen around Park Slope — a row of bricks newer than the rest, a building of more recent design than those on either side. Rusty pieces of the fallen jet still sit in one man’s backyard.


Cash Cab is a Fraud

Discovery advertises Cash Cab as a show where unassuming people enter a taxi and are suddenly shocked to discover they are contestants on a game show. However, according to this article Cash Cab is a total fake, with contestant's being pre-screened; the viewer is given the impression that the person is simply hailing a cab.
Also fake money given at the end of the ride with a check mailed at a later date.

Off-Track Betting Shuts Down

The New York Times reports that the state's OTB parlors have been closed after a deal in Albany fell through. It might seem odd that a legal gambling establishment has failed to prosper, but this quote says it all:
“It’s terrible,” said John Grassley, 77, a retired postal worker who said he had been an OTB bettor since it began. “I thought they would solve it at the last minute. They ought to privatize it, or turn it over to the Gambinos. Government can’t run anything.”
The man knows of what he speaks. After all, he's a retired postal worker.


Amsterdam Today and Yesterday

Check out these amazing overlaid images of Amsterdam by Jo Teeuwisse, and her interview at My Modern Met. More info also at the Daily Mail.


Band Break-Ups of 2010

Flavorwire pays tribute to the many bands that broke up and went on hiatus this past year. Of all of them, Ponytail is the one I'll miss the most:


Sex and The City is So Over

Linda Holmes in a recent article appeals that sources using references and examples Sex and the City as evidence of recent culture phenomenons are inaccurate. She argues that Sex and the City is no longer modern since the show premiered 12 years ago and went off the air 6 years ago. It's time to move on, beyond Carrie, Mr. Big, Miranda, Samantha and Charlotte.


The Con Man

Jason Jellick wrote a controversial article published by Salon earlier this week on his life of being a self proclaimed amateur con artist. He started by returning things that he hadn't bought, but only to corporations. He moved on to conning McDonald's drive thru's, hotels and gyms. He got a thrill from trying out different personas, until he realized that what he was doing was not only targeting individuals, but also putting him and his wife in danger.
He caused lost profits, until he realized that he had to leave behind his persona and become someone different.