Press Office

Christmas presents: little appreciated but sold at a premium

Press release from 04 December 2008

Christmas presents are worth less than their actual purchasing price to the typical recipient. At the same time, recipients would tend to demand a far higher price if somebody attempted to purchase the present from them. This so-called "endowment effect" is confirmed by a recent survey performed by RWI Essen in the course of which more than 500 students of various disciplines were surveyed at the Ruhr University in Bochum, Germany. The study revealed that the effect does not depend on the price of the present and is less pronounced in students of economics, which would indicate that such students either have a better understanding of the market or have cooler emotions.

Christmas presents often entail a loss of efficiency: if they had to purchase the present themselves, the typical recipient would spend less money on their Christmas present than its actual market value. However, if you attempted to purchase it from them, their asking price would be above the actual value. This so-called "endowment effect" has been confirmed by a survey in which students at the Ruhr University Bochum were surveyed. According to the survey, the price the respondents would pay for a Christmas present they had received would be 11% below the market value of the present on average. Thus, giving presents leads to a loss of efficiency; in other words, apart from emotional value the benefit to the recipients would have been greater if they had received the value of their present in cash. However, if you were to offer to buy the present off them, the recipients would ask a price that is an average of 18% above the market price.

Subjective valuation of gifts also depends on the giver. Efficiency loss is greatest in the case of Christmas presents from grandparents and other relatives; presents from these groups are often valued well below their actual market value. In other words, their presents are more frequently "off the mark". In contrast, the gap between the price that recipients would be willing to pay to purchase a present themselves and the selling price that they would ask for apparently does not depend on the emotional distance between the giver and the recipient; in fact, it is relatively constant. In addition, the price of the present is not a relevant factor in the various valuations.

Students of economics value prices more realistically

Breaking down the figures by the students' fields of study reveals that the "endowment effect" is less pronounced in students of economics. Their valuations are closer to the market value of the present; in other words, they would be prepared to pay more and would ask less for the present than the average student. This could be attributed to the fact that students of economics focus on market and price mechanisms in their studies. However, it is conceivable that they just tend to be more able to separate the material aspect of giving from its emotional aspect. Studies on this topic, or similar topics, in which all the respondents are (future) economists could thus lead to biased results.

In the course of the study more than 500 students of biology, chemistry, law, medicine, East Asian studies, psychology, social sciences, and economics at the Ruhr University Bochum were surveyed between January and March 2008. A questionnaire asked the respondents to valuate three of last year's Christmas presents. Some 65 % of the respondents were students of economics; the respondents in the survey were 24 years of age on average and in their fourth term at university.

For further information, please contact:
Prof. Dr. Thomas K. Bauer, Phone: +49 201 8149-264,
Sabine Weiler ( RWI Press Office), Phone: +49 201 8149-213,

 

This press release is based on the Ruhr Economic Paper #75 ("WTP vs. WTA: Christmas Presents and the Endowment Effect). It is also available as a PDF file at www.rwi-essen.de/publikationen/ruhr-economic-papers/.

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