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Economically Rational Holiday Shopping

Understanding how the concepts of economic waste and self control apply to gift-giving could bring some welcome rationality to the holiday season.

Justin A. Reckers and Robert A. Simon, 10/20/2011

You may have noticed Christmas stores and decorations popping up in shopping malls in your community. (There seems to be plenty of empty space in strip shopping malls these days, but that is for another writer to discuss.) It's mid-October and the retailers are ready to sell you holiday merchandise. You may buy decorations for your home and office and gifts for everyone you know, including your nuclear family, aunts, uncles and cousins, friends, clients, neighbors, and even office mates.

There are two main behavioral concepts that come to our minds when we consider the excess that is the holiday shopping binge: Economic Waste and Self Control. Getting a handle on both could bring some sanity back to the season.

Economic Waste: We are not here to be curmudgeons or penny pinchers or play the famous character Scrooge. Rather, we are the ghosts of economic rationality past. Do you really think we need to have stores that sell nothing but Christmas and Hanukah decorations, or are the retailers on to something else? Maybe they are using our self control against us. In times of great holiday cheer, why wouldn't you want to go into credit card debt in order to buy a bunch of Chia Pets for your office mates? Chia Pets are the gift that keeps on giving, and it is the thought that counts after all. Or maybe this is just a saying that a marketing executive came up with.

The point is, they are trying to help you rationalize buying more crappy gifts in the future after Cousin Steve was rude enough to tell you the gift you gave him was a waste of money. Was it a waste of money? It is, after all, economically irrational to waste money. So wouldn't it stand that buying gifts for ungrateful Cousin Steve in the future would be economically irrational?

We think it might be. You may never know what Steve would choose to spend that $20 on if given the opportunity, so no matter what gift you give, there will be a difference between what you pay for it and the value Steve gains from it. That difference is economic waste, and wasting economic resources is economically irrational. So why do we do it every year?

It is the thought that counts. Each and every human being derives pleasure from giving gifts at least as much as, if not more than, receiving them. The ones who derive exponentially more pleasure and joy from giving are called saints and have their names on plaques in civic centers, zoos, and places of worship. The ones who get caught up in the moment and let their emotions lead them into buying crappy gifts and overspending are called human beings.

Self Control: In the days of economic rationality past, it was not uncommon for a family to give fruit or whatever their family farm produced as holiday gifts. We can probably all derive relatively the same level of enjoyment from eating a pear. Certainly there are the outliers who just don't like pears, but we all need the nourishment that is provided by the food and grains created by our neighboring farm, or the warmth of a sweater woven from the wool of your neighbor's sheep.

Those were simpler times. Christmas stores and credit cards didn't exist, and I would have to assume most people did not feel obligated by the office Christmas party to buy a gift for their cubicle neighbor whom they otherwise would make an active choice to avoid on most days.

Justin A. Reckers, CFP, CDFA, AIF is director of financial planning at Pacific Wealth Management www.pacwealth.com and managing director of Pacific Divorce Management, LLC www.pacdivorce.com, in San Diego.

Robert A. Simon, Ph.D. www.dr-simon.com is a forensic psychologist, trial consultant, expert witness, and alternative dispute resolution specialist based in Del Mar, Calif.

The author is a freelance contributor to MorningstarAdvisor.com. The views expressed in this article may or may not reflect the views of Morningstar.

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