THE GIFT RIGHT OUT.(The Talk of the Town)

Christmas shopping in the U.S. has been a reliable source of anxiety and stress for well over a century. "As soon as the Thanksgiving turkey is eaten, the great question of buying Christmas presents begins to take the terrifying shape it has come to assume in recent years," the New York Tribune wrote in 1894. But recently millions of Americans, instead of trudging through malls in a desperate quest for the perfect sweater, have switched to buying gift cards. The National Retail Federation expects that Americans will buy close to twenty-five billion dollars' worth of gift cards this season, up thirty-four per cent from last year, with two-thirds of shoppers intending to buy at least one card; gift cards now rival apparel as the most popular category of present. This is, in part, because of clever corporate marketing: stores like gift cards because they amount to an interest-free loan from customers, and because recipients usually spend more than the amount on the card--a phenomenon that retailers tenderly refer to as "uplifting" spending. But the boom in gift cards is also a rational response to the most important economic fact about Christmas gift giving: most of us just aren't that good at it.

We all know that bad gifts inflict a cost--just think of the rigid smiles that greet an unwanted floral tie or Josh Rouse CD--but it's surprising how big that cost can be. Since the early nineteen-nineties, Joel Waldfogel, an economist at the University of Pennsylvania, has been doing a series of studies in which college students are asked to put a value on the presents they receive. Waldfogel's main finding is that, in general, people spend a lot more on presents than they're worth to those who receive them, a phenomenon that he calls "the deadweight loss of Christmas." A deadweight loss is created when you spend eighty dollars to give me a sweater that I would spend only sixty-five dollars to buy myself. Waldfogel estimates that somewhere between ten and eighteen per cent of seasonal spending becomes deadweight loss, which means that billions of dollars a year is now going to waste.

Why aren't we better at gift giving? A lot of the time, we don't know the people we're shopping for all that well. Much of the deadweight loss that Waldfogel found was caused by older people, who may not be attuned to what their young relatives really want, and are therefore more likely to give gifts that recipients value less. More surprisingly, though, we're also bad at buying for the people we're closest to. A recent study by the marketing professors Davy Lerouge and Luk Warlop finds that familiarity can actually lead us astray. They ran a series of experiments with long-standing couples in which the partners tried to predict each other's taste in furniture--a sort of academic version of "The Newlywed Game"--and found that, in general, people did a poor ...