STANFORD GRADUATE SCHOOL OF BUSINESS—’Tis the season, and if you’re like most people you’ll probably end up dropping a heftier sum of cash than you’re comfortable with on presents for loved ones and colleagues. The findings of a recent study, however, might encourage you to think twice about what you really need to spend.
Two investigators from the Stanford Graduate School of Business have found that when it comes to putting out money for gifts, less may well be more. In several studies, they discovered that although most gift givers assume that a more expensive present will be more appreciated, receivers don’t appreciate expensive gifts that much more. In fact, the old aphorism still holds true: money can’t buy you love.
In one study, researchers looked at one of the most common large-ticket items purchased year-round: the engagement ring. Surveying recently engaged couples online, they found that, on a scale of one to seven, men consistently thought their rings were more appreciated by their fiancées the more expensive they were. Fiancées themselves, however, did not rate themselves as any more appreciative if the rings were more costly.
“This shows that men shouldn’t feel bad if they can’t afford to buy the ring they really want,” says Frank Flynn, associate professor of organizational behavior at the Stanford Graduate School of Business and a co-researcher on the study. “The fact that the thought counts more than the price tag is important for people to realize, especially in these challenging economic times when people are really strapped for cash.”
In a second study, Flynn and an associate asked a nationwide sample of participants to think about a recent birthday gift they had either given or received. Participants described a variety of gifts, including t-shirts, CDs, jewelry, wine, books, and home décor items. Again, those who were givers expected that more expensive gifts would make the recipients feel significantly higher levels of appreciation. In contrast, the recipients said they did not feel greater appreciation levels for gifts that had cost more.
“You simply don’t have to spend that extra hundred dollars to get the same level of appreciation for a gift,” observes co-researcher Gabrielle Adams, a doctoral student in organizational behavior at the Business School. In fact, say the investigators, givers are likely to spend $100 to buy a gift that receivers would only spend $80 to purchase for themselves. Economists call the excess $20 “deadweight loss”—money consumers could have better spent in other ways.
In Flynn and Adams’s third study, participants were asked to think about giving or receiving either a CD or an iPod as a graduation present. Once again, those who were randomly assigned to be “givers” thought by giving the more expensive iPod their present would be appreciated more in contrast to the CD. The “receivers” rated no difference in appreciation levels, regardless of which item they were told to think about getting.
The same attitudes that we show towards gifts wrapped with a bow can be seen in the business arena. Flynn and Adams say companies do not necessarily have to go overboard in rewarding employees for a job well done. “In the dot com boom, you heard about excesses such as organizations rolling out Harley Davidsons as Christmas gifts for staff,” Flynn says. “The recognition that’s conveyed through smaller gestures, perhaps done more frequently, is just as meaningful, if not more so, than large, splashy gifts.”
And on the home front, the research shows that people need not feel guilty about putting spending caps on their holiday gift budgets—which should be a welcome balm in these financially troubled times. “The people for whom your gifts are destined won’t necessarily know you were weighing and measuring items with different prices,” Adams says. “They’ll more than likely just be happy to get any gift at all.”