How to Give the Most Efficient Christmas Gifts, According to Economists

For an economist, the holiday season can seem wasteful. Or at least, it does to the economists behind the Marginal Revolution University weekly video series, Tyler Cowen and Alex Tabarrok. In their latest video, the duo tackle the most efficient way to cross people off your Christmas list. (Just a warning: You may not like the answer.)

From an economist’s perspective, gifting can be a positive trade or a negative one. If you get a gift you don’t like, it’s worth less to you than it cost the person who bought it. For example, your great-aunt may have spent $10 buying you socks, but you would probably much rather have the cash. But if you get a gift you do enjoy, it’s worth more than just its cash value. If your best friend gave you a book they loved, it might not be worth much in a store—used books aren’t exactly money-makers—but you’ll likely feel more strongly about it than its, say, $5 market value would dictate.

In general, though, it seems that we often don’t value the gifts we receive quite as much as the person buying the gift might hope. Research by economist Joel Waldfogel has found that on average, people tend to spend around $50 per gift, but recipients tend to value those gifts at only $40. Add up how many gifts you buy each holiday season, and you’re talking about significant chunks of wasted cash.

Speaking of cash, according to Cowen and Tabarrok, as unsentimental as it might feel, cash is technically the most efficient gift, economically speaking. Everyone likes it. A $20 bill costs the gift-giver $20, and it’s worth $20 to the recipient. No waste!

Hear their explanation in the video below, and stick around until the end to learn more about the most efficient ways to give to charity—which you definitely should be doing before the tax deadline on December 31. If you haven't been convinced that cash is the way to go, we've got plenty of gift ideas to help you figure out what to get every person in your life.