Freakonomics Radio - 105. Have a Very Homo Economicus Christmas

Episode Date: December 12, 2012

Who better than an economist to help with your shopping list?

From APM, American Public Media, and WNYC, this is Freakonomics Radio on Marketplace. Here's the host of Marketplace, Kai Risdahl. Time now for a little Freakonomics Radio. It is that moment every couple of weeks where we talk to Stephen Dubner, the co-author of the books and the blog of the same name. It is, yes, yes it it is the hidden side of everything. Dubner, how are you? I'm great, Kai. Happy holidays.

And to you. And to you, sir. Thank you much. I come today with some practical advice for the gift-giving season. Because, you know, who better to help with your shopping strategy than, wait for it, a bunch of economists. Oh, you need to get out more, man. Now, you might think that an economist would simply encourage everybody to buy absolutely as much stuff as they can, since that might create jobs for somebody somewhere. But in fact, many economists see gift giving as terribly inefficient.

OK, they say that it generates a lot of what's called a deadweight loss, which means that you place much less value on the socks or the electronic gadget that I give you than it actually cost in real dollars that I paid for. Or that my mother-in-law gives me. Oh, wait. Precisely. Did I say that on the radio? Yes.

Anyway, she's a very nice lady. Might I say, though, that that is especially Scrooge-like of you and them, right? I mean, come on. It is indeed. It is indeed. In fact, Joel Waldfogel, who is an economist at University of Minnesota, wrote this book you may know about called Scroogenomics, Why You Shouldn't Buy Presents for the Holidays. Here is how Joel Waldfogel approaches the gift game. Well, one thing that I like to do in gift giving in the

family is to give myself things, or what I should really say is to get permission to buy myself something special. If I want to go buy a fancy camera or something, which would be the ideal gift for me, but of course, no one else is going to buy it correctly, I can just ask my wife for permission. And if she gives permission, then there I have a wonderful gift. So that's what you might call the selfish Santa approach. Okay. Plus, which nobody could buy it correctly. That's right. Yeah, I love that part. Now, that may not strike you as being particularly generous.

It sure beats, however, what another economist once tried for his wife's birthday. Here's Alex Tabarrok. I made the mistake of getting my wife a Blu-ray DVD player, a really high-end Blu-ray DVD player for her birthday. This, of course, was something that I actually wanted. So on my birthday, she got me a dress. I love that. That's actually awesome.

It was quite well done. Now, there are other gift-giving strategies to consider. The economist Justin Wolfers takes what I like to call the anti-narcissist approach. They have this thing called the spotlight effect. You tend to think that you're in the spotlight and everyone's looking at you. Applying it to Christmas, it's like you think that everyone's looking at the gift you're about to give and it's super important. And so you put a lot more weight on it and maybe you spend a little bit too much.

Truth is, you're not that interesting. The person who's about to get the present is going to get dozens of others and they'll probably forget about what you're going to give them. I hate to break it to you, you're're not that interesting. The person who's about to get the present is going to get dozens of others, and they'll probably forget about what you're going to give them. I hate to break it to you, you're just not that interesting. In other words, don't overthink it and don't overspend. That's the message there. What about your favorite economist, Mr. Levitt? So Steve Levitt, I asked him about gift giving. I have to say, he came back with a really lovely and heartfelt response about what it really means to give someone a gift.

The very best gifts not only show someone that you know about them and care about them, but they actually demonstrate that you know more about them than they know about themselves. I mean, A, that's really nice, but it's so unlevitt-like, right? I mean, he's a nice guy, but... He contains multitudes, is what I might have said. So, Kai, let me say this. With that spirit in mind, and to demonstrate how much I actually care about you, Kai Risdahl, I've sent you a couple gifts. Did you find them there?

They're on here. I see them sitting here. I should tell you, I didn't get you anything. It's all right. There's still time. All right, okay. So, you got one with green wrapping paper and one with red, right? Go ahead and open up the red one first, just for kicks. The's still time. All right. Okay. So you got one with green wrapping paper and one with red, right? Yes. Go ahead and open up the red one first just for kicks.

All right. The red one first. Okay. So I'm just going to shake it for a second, and I'm a little disappointed because I know it's not beer. Not beer. I'm just saying. And if it is beer and you shook it, you got a problem.

Compression stockings. Compression leg sleeves. Right? You're a runner. I am, yes. And occasionally I get chin splints. Yes. I thought you might like some purple.

I think of it as Kai Rizdahl lavender when I look at that color. Yeah, yeah, no. It's those things. They go from the knee down to the ankle, and they hold you all together down there. Honestly, Kai, I have to say, you don't sound all that happy. So go ahead and open up the green one then. Go ahead. Okay, this isn't beer either, dude.

Not beer? No, you sent me. No, did you really send me money? I can't keep this. This is $100. That's $100 for you, Kai. Come on, it's Market either, dude. Not beer? No, you sent me. No, did you really send me money? I can't keep this. This is $100. That's $100 for you. Come on, it's Marketplace, baby. I'm showing you the love by showing you the money. Now, don't spend it all in one place. Happy Holidays,

Kyrizdahl. Do I know you or what? I feel bad. I didn't get you anything. You'll feel better when you buy. You'll feel better when you start to spend it. Stephen Dubner. He's back in a couple of weeks for Economics is the Gig. This is awesome. A hundred dollars.

Hey, see? You see how happy you are? I'm so happy. Hey, podcast listeners. I know what you're thinking. You're thinking, that was a perfectly nice little marketplace segment. I'm glad I heard from Justin Wolfers and Joel Waldfogel, Alex Tabrock, and a little bit from Steve Levitt. But I want more Levitt.

He's the man. Levitt puts the freak in Freakonomics Radio. So, okay, here's a holiday podcast bonus for you. The rest of that conversation with Steve Levitt about Christmas gift-giving. Happy everything to you and yours. I get my kids toys

and I get my wife fake jewelry and books and yoga outfits. And I buy my mom monthly flowers and then I'm done. That's all I buy. Now talk to me for a minute about the fake jewelry and how much Jeanette loves that versus real jewelry, let's say. When we first started courting and we're married, I repeatedly bought her pretty expensive for me jewelry. And she never wore any of them, never liked them, and it was pretty much a waste of time. What I noticed, though, is that she had these diamond stud earrings.

And about once a year, she would lose the back and they'd fall out and she'd lose them and she'd be upset because they were pretty expensive, a few hundred dollars, and she'd have to replace them. So I went on Amazon and I typed in fake diamond earrings. And I was overjoyed to see that you could buy diamond stud earrings, I should say fake diamond stud earrings. And I wondered what the price would be. I thought maybe they'd be a third of the price or half the price. It turned out they are, I think they're about $2.99 per pair. $2.99, not $2.99. That's correct. $2.99. So I said, well, what the heck? Why don't I get 10 pairs? And so I bought her 10 pairs of fake diamond earrings for a total of $29.99. And I wasn't sure what her reaction was going to be, but she opened them up and she said, I don't understand. These are like 10 pairs of diamond earrings. I said, no, no, they're 10 pairs of fake diamond earrings.

The whole thing only costs $29.99. You can wear them. You lose them. You don't even have to worry about it. And she said, great. And she put them in, and she gets compliments all the time. She loses them all the time. I think we pretty much run through all 10 pairs over about five years,

and it was an excellent, excellent gift. It freed her up. It freed up her spirit to not have to worry about losing them. So I guess if the intention of a gift is to show a person how much you know and care about them, especially the know about them, in some ways, this was like the ultimate gift to her because you knew well enough about her that she would stress out about a real one and therefore you could substitute it. Do you think that's why she liked him so much? Yeah, I think that's right. And indeed, it was an especially good gift because the very best gifts not only show someone that you know about them and care about them, but they actually demonstrate that you know more about them than

they know about themselves. And this was a case where she never herself, I think, would have imagined buying these. But once she had them, she realized that she loved them. So that worked out pretty well. What is the best Christmas present you've ever received? I'd say probably many of the best ones I've ever received I gave to myself because I pretty much buy for myself whatever I like. I don't like very many things. What are the best gifts you've ever given yourself? I have a putting green in my attic, which I must have gotten 500 hours of enjoyment out of the putting green in my attic.

I gave myself a track man. That was pretty good. It's like an incredibly expensive Doppler system for tracking where your golf balls go. Pretty much all my good presents, I guess, relate to golf. Golf-related. What do you think is the best Christmas present you've ever given? Oh, man. Best Christmas present I've ever given. I'll tell you the one that my wife, Jeanette, told me was the best one I ever gave her. And that was a really great tweezers from this company called Tweezerman, which makes really excellent tweezers.

And I didn't really think it was going to be that big a hit. But about two months into the new year, she turned to me and said, this is the best present you ever gave me. Now, how does the entire notion of gift exchange strike you from an economic standpoint? Well, of course, economists start with a view of efficiency. And it's clear that gift exchange, from a pure efficiency perspective, is awful. That people, for the most part, will buy themselves the things that they need. And to think that someone else could do it better than you is usually quite far from the mark. That's like econ 101. That's the first thing you learn in econ is that efficiency is everything. But, of course, at a much deeper level, life is about relationships. And to put it in economic terms,

the idea that someone else would put in a lot of effort and go to a lot of trouble and a lot of thought to try to get you something that you would appreciate is a credible signal of their investment in you. So I think it's easy with the economics to reconcile the value of thoughtful gift giving. I think much less useful and valuable from that framework are gift cards, the idea that if I were to give my wife a $500 gift card to go shop at Macy's, from an economic perspective, that's a terrible gift because number one, it doesn't take any effort. And number two, as you and I both know, the most likely thing that will happen to a gift card is it'll sit in some drawer until it expires and no

one will even use it. So it's great for the retailers, but terrible for both the giver and the receiver. How do you feel about giving cash as a gift for Christmas? Oh, I think it's terrible. But if you're lazy and you don't care about sending a signal to the person that you care about them, it's expedient, that's for sure. But is there a category of person in your life with whom you have a relationship where cash is the most appropriate gift that you give them? No, not really. I mean, I give gift cards to people who work for me, having just said how stupid it is to give gift cards. And why do you do that?

Because you don't care enough to get a real gift? As long as they're not listening, that's probably a reasonable assessment. And if they are? If they are, they know I'm just joking around. Okay. Now, what about, is there any inter-economist gift-giving at the UFC? Do Gene Fama and Gary Becker and Richard Thaler play Secret Santa with you and each other? The only economist who has ever given me a gift, I'm trying to think, is John List, who every year gives me a dozen golf balls that are monogrammed with something relevant to our previous season, like a really low score that we shot in a scramble. That is so thoughtful.

Or something like that. Yeah, it's nice. And I never give him anything back, but he keeps on giving me the gifts, so that's nice. And he's okay? Does he drop hints like, hey, I've gotten you golf balls every year for the past six years,

and that's interesting. No, I think he does it for himself. I think it makes him feel whole. Now, I get you a Christmas gift every year, the same Christmas gift. It's fantastic. You give us these unbelievable pomegranates, and I've never given you anything. In fact, I've never really even thought about giving you anything. But I don't give anything to anybody, so I don't think you feel particularly bad about it.

I think it would feel so weird if you got me a present. Can you think of an instance where someone gave you a gift that really ended up changing the way that you treated them in the future for better or worse? You know, my students, my students give me little gifts sometimes. And I always feel awkward about it. And I think it's a total waste of time. But I have to admit, five years later, when I can barely remember them, and they come back and ask me for recommendation letters, I do often remember the gift and write a nicer letter than I would have otherwise. It's pretty pathetic, but it's probably true. Coming up on the next Freakonomics Radio, the story of how one person's childhood home, and that person happens to be me, gets turned into something awful.

When we first heard about your mom selling the house, and she was there for a while, and then she sold it. And then this couple took it over, and then it wasn't for a little while, it wasn't over there that we found out through the grapevine around here, as small towns have grapevines, that it was being turned into an adult swinging house. That's right. When your childhood home gets turned into a sex club. That's next time on Freakonomics Radio. Thank you.