Economist shits on Xmas gift giving?

Instead of buying something I want, I prefer to hope that someone else purchases such on my behalf by either guessing properly or my whispering in my ear.

I wonder if Muslims and Hindus celebrate during the holidays. Sorry, I mean "our" holidays.

A Perfect Christmas Is Suboptimal

Gift giving is inefficient from an economic point of view. It’s an example of ‘expensive signaling.’

By Roland Fryer, WSJ

Dec. 23, 2025 5:17 pm ET

My kids come racing down the stairs on Christmas morning like it’s a jailbreak—feet pounding, voices high, eyes wide, charging toward the tree as if Santa personally negotiated a trade deal with their deepest desires overnight. I’m happy for them. But every year, as wrapping paper detonates across the living room and a small mountain of objects emerges—some beloved, some baffling—I have the same unseasonal thought: This is wildly inefficient.

Christmas is, among other things, an elaborate logistical operation devoted to giving people things they wouldn’t have bought for themselves at prices they wouldn’t have paid. The modern economy can route a package across the country in hours, match riders with drivers in seconds, and price airline seats in real time. But every December we collectively suspend optimization and replace it with a ritual that specializes in misallocation.

All I ever wanted for Christmas is optimal gift-giving. Not more gifts. Not better gifts. Optimal gifts—maximum happiness per dollar, minimal waste, and a distribution mechanism that respects revealed preference. Thankfully, the world is too sane to oblige.

The economist’s case for an optimal Christmas is straightforward. The best gift is cash. The next best is a transfer with minimal restrictions—a check, a Venmo, a gift card that doesn’t expire. If you insist on a physical object, the optimal choice is something the recipient would have purchased anyway. The hard part is knowing what that is.

Gift-giving, after all, is a textbook information problem. The recipient knows his own preferences. The giver doesn’t. The giver operates under uncertainty, time pressure and limited data, with incentives only imperfectly aligned with the recipient’s utility. Outcomes are judged not only by use value, but by theater—surprise, symbolism, presentation. The result is a market in which preferences are private, incentives are misaligned and reliable information is hard to come by.

This isn’t mere theory. The economist Joel Waldfogel gave Grinches everywhere their favorite Christmas citation by documenting what many people quietly suspect: Gifts destroy value. In a series of surveys, Waldfogel asked recipients to estimate what a gift cost and what they would have been willing to pay for it. The difference between the two is “deadweight loss”—welfare that vanishes because the person spending the money isn’t the one consuming the good.

The intuition is straightforward. If I give you a $100 sweater for which you would have only paid $60, the economy has effectively burned $40. That $40 could have funded a dinner out, gone into your child’s college fund or simply remained in your pocket. Instead, it reappears as a return receipt, a donation bag, or—an additional cost—an obligation to wear the sweater at least once in my presence.

Waldfogel’s insight reframes Christmas in terms economists immediately recognize: not as a festival of generosity, but as a massive annual rite of mistargeted consumption. The same problem arises whenever third parties spend on your behalf—healthcare, corporate procurement, government programs. When the payer and the user are different people, spending goes up, targeting worsens, and value leaks out.

The costs aren’t merely monetary. In buying gifts, Americans also spend time—hours browsing, guessing, wrapping and returning. Valued at something like the average hourly wage and added to typical holiday spending, the implied resource cost of Christmas gift-giving, by my estimate, is roughly $1,500 to $2,300 per shopper. Multiply that by the share of Americans who buy gifts, and the total quickly reaches hundreds of billions each year.

Which raises the real puzzle: If the inefficiency is this large, why don’t we correct it?

Part of the answer is in the myth itself. In theory, Santa is a perfect-information fantasy—omniscient, accurately targeted and morally calibrated. In practice, “Santa” is a decentralized supply chain run by unpaid parents facing volatile demand, shifting preferences, tight budgets and hard delivery deadlines, with zero tolerance for stock-outs or perceived unfairness. The myth imagines a benevolent planner; the reality looks much closer to a second-best market riddled with information frictions.

An even deeper reason is that optimal gift giving would succeed economically—and fail socially.

Gifts aren’t primarily about consumption. They are about relationships. A gift is a signal: evidence that someone noticed you, thought of you, took time and tried. That signal has value independent of whether the object is exactly what you would have chosen yourself. Indeed, the very features that make gifts inefficient as market transactions—surprise, idiosyncrasy, miscalibration—are often what make them meaningful as social gestures.

Economists call this “costly signaling.” When signals are cheap, they are easy to fake and quickly lose informational content. “I care about you” is cheap talk. Cash can be cheap talk too: It requires little information and little effort. It is efficient, yes—but efficiency isn’t always what the recipient wants to maximize. Often the real question is simpler and more human: Do you know me? Did you try?

A slightly “wasteful” gift can be a more credible signal than cash precisely because it reveals effort. It says: I spent time thinking about you. I took a risk. I accepted the possibility of getting it wrong. The worst gifts aren’t the ones that miss; they are the ones that reveal no attempt at all—generic, last-minute, indistinguishable from what you would give a coworker in an office Secret Santa.

Even I admit that a fully rational Christmas would be unbearable. Imagine Christmas morning under the optimal allocation. The children run downstairs and find a spreadsheet. “Merry Christmas,” it reads. “Household resources have been allocated to maximize your utility. Please see Line 12 for your transfer.” No suspense. No story. No Santa.

But the choice isn’t between full rationality and pure sentimentality. Survey evidence suggests many households are converging on a middle ground: boundedly rational gift-giving. Cash and cashlike gifts have become increasingly common, while gift cards remain popular—an effort to reduce preference misalignment without abandoning the ritual. Lists, receipts and liberal return policies quietly lower information frictions. Spending caps function less as austerity than as coordination devices, preventing signaling arms races that drive up costs without improving welfare.

Gift giving is one of the few domains in which society knowingly chooses to run a market inefficiently. We tolerate misallocation because we are purchasing something other than objects: reassurance, attention, belonging—a ritualized way of saying you matter to me and I am willing to incur a cost to prove it.

This year my eyes will still roll a little as the wrapping paper flies. The economist in me will still long for an elegant transfer mechanism. But as the morning unfolds and my kids clutch whatever odd, half-expected items Santa delivered, I’ll be reminded why the world is too sane to do optimal gift-giving. Efficiency isn’t the only good. Sometimes “waste” is the price of wonder.

Mr. Fryer, a Journal contributor, is a professor of economics at Harvard, a founder of Equal Opportunity Ventures and a senior fellow at the Manhattan Institute.