Thinking about Christmas like an economist

This post first appeared on the Stockholm University’s online 2016 Advent Calendar. For the original post and link to others in the series, click here.



What is Christmas? A time for communion with family and friends, perhaps, or a period of quiet reflection? If that’s what you think, it’s because you’re not a hard-nosed economist.


Ever since A. C. Pigou – the “father of welfare economics” – economists have measured welfare by subtracting what you did pay for something from what you would pay (at most). If you would pay as much as SEK 50 for a cup of coffee but the campus cafeteria only charges SEK 20, then the welfare effect of buying a cup is SEK 30, which is a good thing.


In 1993, the economist Joel Waldfogel asked his students to report, first, the retail price of the presents they had received at Christmas, and second, what they would be willing to pay for those things. He found that students would only pay two-thirds to nine-tenths of the cost of their gifts – meaning that one-third to one-tenth of all money spent of gifts for them was lost, which is a bad thing.


People Christmas shop to the tune of SEK 70 billion (USD 7.6 billion) in Sweden alone. Even if only a tenth of the value evaporates, the total “deadweight loss” would still equal SEK 7 billion (USD 760 million), which is an enormous amount of money.


If you think like an economist, the sure way to avoid deadweight losses is not to give presents. Perhaps you can invite the family to sit down by the Christmas tree and order something they were going to buy for themselves anyway from their preferred online retailer.


If you think like an economist, but still feel compelled to give presents, you can minimize losses by giving cash. Perhaps you can invite the family to sit down by the Christmas tree and exchange gift-wrapped SEK 100 bills – or just transfer money to each other using some mobile app.


Or, you know, you can not think like an economist.


Erik Angner is a  scholar with Virtue, Happiness, & the Meaning of Life, and Associate Professor of Philosophy at Stockholm University.