An Irrational Guide to Gifts
I have recently been asking people around me what they think makes a good gift. And I don’t mean specific items like sunglasses or one of my books (which are all excellent ideas); I was looking to find some of the basic principles and characteristics of good gifts. One of the best answers I’ve gotten so far is this: “A good gift is something that someone really wants, but feels guilty buying it for themselves.” What is interesting about this answer is that the ideal gift from this perspective is not about getting the person something that they can’t afford, or something that they have no idea that they want – it is all about alleviating guilt connected with the purchase of a highly desirable (yet guilt invoking) item. So, lets consider two ways in which good gifts can eliminate guilt:
Case 1* Imagine that you are walking by a storefront and you notice a beautiful coat that is just the right cut and color. You walk in to check it out, and up close it is even more beautiful. But then, you look at the price tag and you discover that it is about twice as expensive as you originally guessed, and after 30 seconds of painful deliberation you decide that you can’t possibly justify paying so much for a coat – and you go on your way. When you get home, you find out that your significant other has purchased that same exact coat for you … from your joint checking account. Now, ask yourself how you would feel about this. Would you say a) “Honey, this is very nice of you, but I have weighted the costs and benefits earlier and decided that this coat is not worth the money — so please take it back immediately” or b) “Thank you so much, I love it, and I love you!” I suspect that the answer is b. Why? Because by getting you the expensive coat, your significant other got you what you wanted without making you contemplate the guilt associated with the purchase.
Case 2** Imagine that you have just finished a fantastic meal and have the option to pay with cash or with a credit card. Which one will “hurt” a bit more? You probably think that paying with cash will be a more miserable way of spending your money – but why? Because, as Drazen Prelec and George Loewenstein show, when we couple payment with consumption, the result is a reduction in happiness. When we pay with a credit card the timing of the consumption of the food and the agony of the payment occur at different points in time, and this separation allows us to experience a higher level of enjoyment (at least until we get the bill).
To think some more about this example, imagine that I own a restaurant and I realize that on average people eat 50 bites and pay $50. One day you come to my restaurant and I tell you that because I like you so much I will give you a great price and charge you half price – only 50¢ per bite. In addition, I will also charge you only for the bites you eat, and you will not have to pay for the bits that you don’t eat. What I will do is serve you your food and stand next to you with my notebook open and mark in it each bite you take. At the end of the meal I will charge you 50¢ for every bite you took. I think you will agree that this would be a fantastically cheap meal relative to the regular price, but I also suspect you will agree that the process will not be much fun. Most likely, every time you take a bite you will be thinking “is this worth it?” and in the process not enjoy the meal at all. Woody Allen might have said it best in the Manhattan taxi ride when he turns to his date to say, “You look so beautiful, I can hardly keep my eyes on the meter.”
The lesson here is that when the timing of consumption and payment are close together, the experience ends up being much less pleasurable. From this perspective you can think about gift certificates for iTunes, drinks, movies, etc. as gifts that not only get people to experience something new, but also get them to experience something guilt-free, and without the pain of paying.
In summary, I think that the best gifts circumvent guilt in two key ways: by eliminating the guilt that accompanies extravagant purchases, and by reducing the guilt that comes from coupling payment with consumption. The best advice on gift-giving, therefore, is to get something that someone really wants but would feel guilty buying otherwise.
May this be a joyful gift-giving season – and in case you want to get me something, I love gadgets, but feel extremely guilty buying them.
Dan Ariely
A shorter version of this post has appeared at the WSJ
[* This example is based on a paper by Dick Thaler, “Mental Accounting and Consumer Choice,” Marketing Science, 1985]
[** This example is based on a paper by Drazen Prelec and George Loewenstein, “The Red and the Black: Mental Accounting of Savings and Debt,” Marketing Science, 17(1), 4-28, 1998]
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I seem to remember the second paper from a consumer behavior course I took a million years ago…doesn’t it say that we can do even better in terms of enjoying the activity if it is prepaid rather than postpaid? I think that this is where gifts overcome a lot of their inherent deadweight loss, since they are, almost by definition, prepaid.
What kind of crazy person feels differently about paying with cash vs. credit?
And yes, I would be inclined to tell my significant other to return the coat. If I don’t, it will be because their act of buying it has shown that me having it will give utility to them as well, so my earlier value calculus was not complete.
That is in fact so true. I think what Dan meant was coming from an irrational point of view. We seem to be the rational kinds so this example is not applicable to us
I would take the largest bite possible, shoving two slices of pizza into my mouth at once. Then just enjoy the drinks
By having to constantly ask yourself “is this worth it?” You have the option to answer “No.” For a lot of people, feeling like they got something so cheap or didn’t fall for something overpriced brings about enjoyment. Sometimes irrationally so
Ah but you are not taking advantage of the system. Pizza is cheap anyway, why not go for the lobster or the foie gras? I would be inclined to order the most expensive item for .50 cents a bite. THEN take big bites
In the coat example, what’s not being mentioned is the act of approval that comes from the giver. If I buy the jacket for my wife, she knows I’m okay with the expense. Therefore she feels less guilt. This of course is all about the dynamic in the relationship, and the source of the gift receiver’s guilt.
And the best gifts aren’t always an elimination of guilt. Sometimes it’s a gift that really symbolizes the significance of the relationship between the two people, whether they share a bank account or not. Guilt though, is probably a bigger player today though and is why my wife is loving her new watch that I/We bought.
What would you make of charity donations as gifts to a third party? Donations and altruism aren’t conventionally associated with guilt. Does the mean that the ‘Good Card’ is a bad gift?
On the other hand, this testimonial appears on their website (http://www1.networkforgood.org/good-card) :
“I give to many charities, but it’s difficult to justify when we have none to very little coming in. This will allow me to feel better about giving.”
But using the gift certificate — especially if it’s in a cash denomination, rather than “1 free massage” — feels like spending money, just in a different category. If I get a gift certificate to something where I would be inclined to spend my own money but not inclined to spend extravagantly, I’m still going to feel a twinge of guilt when I use my certificate. The original formulation of buying me something that I want but would feel guilty about buying for myself is much more powerful than the gift certificate.
This might not be typical but for me its important to know whether I skipped buying something because I really feel guilt or I principally refuse to take part in some transaction. People who know me are aware of that distinction.
It might be worth mentioning this “infantile guilt vs rational decision” moment.
As an example: I would be happy to get Google’s Nexus One phone because I do feel guild spending that amount of money on a phone which is by any standard luxury. On other hand, I dont like the idea of getting iphone even as a gift because I dont approve how things are done at Apple and I dont want to have anything with financing them. There is plenty of other examples.
I asked my wife about the coat example. She picked option b, but said that this was because she now had a second data point: that someone else whose opinion she trusted had decided that it was worthwhile. Which makes sense to me.
How about thinking about the restaurant example from the chef’s perspective? Wouldn’t he be motivated to maximize the marginal value of each marginal bite if he knew that his customers were evaluating him and rewarding him one bite at a time? How much more productive would salaried employees be if they had financial feedback tied to small visible units of work?
I agree.
The best gift I ever got was a gift of pearl earrings from a roommate. I couldn’t afford them, but I wanted them, and I told her once how I wanted my boyfriend to buy them. He then broke up with me, and in the wake of the breakup, when my birthday happened, she bought them for me. She explained that she thought I wanted to have them, and that she didn’t want the regret about loss of the earrings to be part of the breakup.
I cannot tell you how thankful I was that she thought so much about me. A big part of that was that it made me see how bad my own attitude toward the relationship was, in that I was in it just for “what I could get,” and I could and did compare her genuine concern for my own well-being with my own selfish attitude, because I did want the earrings (in fact, I have them to this day!).
Her own awareness highlighted my own lack of self-awareness, and brought me to a more considered sense of what was involved. So I will always thank her for that.
And, yes, I couldn’t afford them at the time … I was in school, and trying to finance my own education!
The best gift is a thing the receiver does not have, but will use every day after that. An iPad, for instance, or a Leatherman. It does not need to be expensive. A handy kitchen tool, for instance.
Check http://www.kk.org/cooltools/ for more ideas.
in the coat example, it’s the guilt of getting the coat vs. the guilt of rejecting a gift.
I think the time perspective matters, and a good gift is something that after a while (a month? a year? a week?) the recipient would feel happy to have received. why a while? because the basic situation of getting a gift involves a certain amount of guilt, and after time heals the guilt, one is left with the happiness (or not) of having the gift.
Gifts therefore should last long. A reference book is better then a novel, and almost anything beets (even a great) dinner.
Lovely!
My preference in the “gift selectioning process” is correlated with the attribute Originality.
I buy a gift ,for the specific person, with “klick” in my mind-may be more time before,;it just fits to somebody!
Have a nice Sunday!
“A good gift is something that someone really wants, but feels guilty buying it for themselves.” <– so true! This has been my guiding principle when people would ask me what I wanted as a gift. I would often process it in my head as such … what would I buy for myself (something that I really liked) but wouldn't.
I’ve never quite understood the concept of buying someone a gift using funds from a joint account. If there’s guilt or hesitation involved in making such a purchase for oneself, I think it’s healthier for the couple to have a meaningful conversation about their spending and decide whether the purchase makes sense within their budget than to make the assuaging of guilt the gift. A temporary pass on the guilt or pain of paying isn’t going help the couple develop good spending habit or a healthy mutual relationship with money.
guilt – needn’t be because of expense. it can be about time, hassle or silliness. I would like to have the Carol Burnet collectors DVD. Is it expensive? no. Is it embarrasing? a little. Will i make time to get it? probably not. but it might look nice next to the Hee Haw DVD that my husband gave me a few years ago….
The credit card vs. cash example for the consumption/enjoyment separation is topical for current retailer choices. With increasing interchange fees (the price that merchants pay the card networks, ranging from about 1.5% to 3.5% or more on each transaction), and changing laws, many retailers are considering moves to offering discounts to cash customers to encourage migration back from plastic. Retailers can calculate the savings from avoided interchange rates easily, but they may be missing the potential top-line loss in connecting consumption to payment more immediately. Is the connection of guilt back to consumption with more cash purchases worth the 1.5% or 3.5% savings from fees the retailers will not have to pay the card companies?
hmm – tech glitch sorry if double posting.
i’d add an emphasis to the “really wants” piece. To know what someone really wants – you have “really know them” that’s kind of the best part, no? when we were first dating my husband gave me a 64 piece socket set for Xmas and a pearl bracelet. he had seen me complain i didn’t have the right socket for a well head inspection i was doing, and also knew that my profession caused me some tom boy image concerns. the joint gift said – i SEE ALL of YOU. (plus – what man that can give a women a socket set is going anywhere?).
re- cash payments. i do like to tip in cash even if paying for a dinner with a Credit Card. makes me happy. I used to wait on table and am grateful for what we have now – when so many do not. which brings us to another great woody allen quote. “Every hooker I meet says it beats the hell out of waitressing. Waitressing’s got to be the WORST job in the world.”
Hi Dan,
I wanted to say that I don’t want any present that I wouldn’t buy for myself, but thinking again led me to this:
I’m thinking about something for my bicycle. Lets say a Brooks saddle that cost 150$.
Now lets say my grandmother comes and say, Kfir, I’ll buy you the house you live in now. Its 250K$.
It seems to me that a house is something that I really can’t afford, but in great need for, and a saddle, if I want to I can afford it, but I’m a little cheap.
So I’ll take the house without any conscious and guilt, but getting the saddle will agonize my soul
Regards,
Kfir
The separation of pain of spending and enjoyment of your new purchase is something that the credit card companies are counting on. Since we don’t pay our credit cards except for once a month we are further removed from pain of paying for purchases. We now only feel pain 12 times a year but joy 365 days a year!
And of course over time as we experience more pleasure and less pain we are more likely to spend more.
Milton Freedom had an interesting way of explaining this idea in government spending in economic theory.
Here is my paraphrased “4 ways of spending money”
1. Spend Your money on Yourself
2. Spend Your money on Someone else
3. Spend Someone Else’s money on You
4. Spend Someone Else’s money on Someone Else
The farther you are from the having to pay and the farther you are from receiving the benefit the more likely you are use the money carelessly.
Why care if the money is not yours and is not for you anyway?
Here is link here http://www.youtube.com/watch?v=5RDMdc5r5z8
Great article Dan!