Why we keep buying gifts nobody wants

Every December, millions of people spend money they often don't have on items that recipients frequently don't want. The conventional explanation is collective irrationality, a system that needs fixing.

But what if the inefficiency is the point?

The deadweight loss puzzle

In 1993, economist Joel Waldfogel published a paper that made him briefly infamous. He calculated that gift recipients value the items they receive at 10 to 33 percent less than what the giver paid. In economic terms, this is "deadweight loss": value destroyed in the transaction. If I spend £50 on a jumper you would only pay £35 for, £15 of value has simply vanished.

The data has only confirmed this pattern. According to a survey of 5,000 Europeans, two thirds (66%) have received a brand-new gift they had no use for or simply didn't like. In the UK, the figure rises to 73%. One in seven Europeans reported being unhappy with their gifts from the previous year, and 10% couldn't even remember what they had received.

What happens to these unwanted items? A quarter get "re-gifted" to someone else. 14% are sold. 10% are returned to the shop. 28% sit in drawers, kept despite being useless, because throwing away a gift feels wrong.

The estimated total spend on unwanted gifts in the UK alone is £1.27 billion annually.

An economist sees this as market failure. But an economist might be missing something fundamental.

The handicap principle

In 1975, Israeli biologist Amotz Zahavi proposed a counterintuitive idea: signals must be costly to be credible.

The peacock's tail is a famous example. It serves no practical purpose. It wastes energy, attracts predators, makes movement difficult. From a pure survival standpoint, it's absurd. But that's precisely why it works as a signal. Any peacock that can survive despite this handicap must have exceptional genes. The cost is the message.

This principle applies directly to gift-giving.

If I hand you £50 in cash, my cost is purely monetary. The transaction is efficient but signals almost nothing about our relationship. I could give the same amount to a stranger with identical effort.

If I spend three hours searching for something specific to you, I'm burning a non-refundable resource: time. Even if I fail and choose badly, the signal of investment has been sent. You know I was thinking about you, not just transferring funds.

This reframes the entire problem. The "deadweight loss" isn't value destroyed. It's value converted from economic to signalling currency. We're burning money to demonstrate commitment. The inefficiency is the proof.

Why cash fails

From a purely economic standpoint, cash is the optimal gift. Recipients can allocate it to whatever they value most. No guessing required, no deadweight loss, perfect efficiency.

Yet giving cash feels wrong, and now we can see why.

Cash is too efficient. It carries no signal beyond its monetary value. Giving cash says: I don't know what you want, or I couldn't be bothered to find out, or our relationship is purely transactional. The absence of friction is the problem.

Gift cards emerged as a compromise. They signal slightly more effort than cash while still allowing recipient choice. But they occupy an awkward middle ground: too efficient to signal real investment, too restricted to offer true flexibility. The worst of both worlds, which is why they often expire unused in wallets.

The fundamental insight is this: what's economically optimal is socially meaningless. What's socially meaningful must be economically wasteful. This isn't a bug in human behaviour. It's the core mechanism.

The coordination trap

Understanding why inefficiency is necessary doesn't make the system less frustrating to participate in.

Once enough people engage in a ritual, the social cost of not participating exceeds the economic cost of participating. Consider what happens if you opt out of gift-giving. You need to explain yourself. You manage disappointed expectations. You risk being labelled as difficult, cheap, or antisocial. You potentially damage relationships with people who interpret your non-participation as a statement about how much you value them.

Buying a gift, even an imperfect one, is often the path of least resistance.

Meanwhile, the retail industry has six to eight weeks to generate a disproportionate share of annual revenue. The advertising starts earlier each year because every additional day of "festive atmosphere" translates into incremental purchases. This commercial pressure amplifies and distorts what might otherwise be a more measured ritual.

The result is a feedback loop. Social pressure drives participation. Participation normalises the scale of the ritual. Normalisation increases pressure on everyone to match that scale. The system inflates beyond its original function.

We're not just burning resources to signal commitment. We're burning more resources than necessary, under time pressure, with degraded decision-making, in an environment engineered to maximise spending rather than meaningful exchange.

The aunt problem

Gift-giving would work reasonably well if givers had good information about recipient preferences. Close friends and family often do: Waldfogel's research showed that gifts from intimate relations approached full value recovery. The signal and the substance can align when you actually know someone.

The problem intensifies with social distance. The colleague you barely know. The in-law you see twice a year. The aunt who still thinks you're interested in whatever you mentioned once, a decade ago.

These relationships lack the informational intimacy required for successful gift selection, yet social convention often demands gift exchange anyway. The sender optimises for "cannot possibly cause offence" rather than "will genuinely be valued." This produces the predictable pile of generic items: soap sets, scented candles, books that will never be read.

Here's the deeper issue: for distant relationships, we're trying to send a signal of intimacy that doesn't actually exist. The gift is supposed to say "I know you" when we don't. No wonder it fails.

The real question

The standard response to all this is to propose efficiency improvements. Secret Santa to reduce the number of exchanges. Charitable donations instead of objects. Explicit family agreements to limit spending. Just give cash and be done with it.

These solutions misunderstand the problem. If you remove the inefficiency, you remove the signal. A perfectly efficient gift exchange is just a series of bank transfers with extra steps. The ritual collapses because there's nothing left to ritualise.

The question isn't how to make gift-giving more efficient. It's how to make the inefficiency count.

If you're going to burn resources to demonstrate investment, the signal should actually land. Spending three hours panic-buying generic items in a crowded shopping centre doesn't signal thoughtfulness. It signals that you, like everyone else, got caught in the six-week scramble and grabbed whatever seemed acceptable.

Signal, not noise

The shift is from economic value to signal clarity.

For close relationships, the goal is demonstrating specific knowledge. Not an expensive item, but the right item. The book they mentioned six months ago. The thing that shows you were paying attention when they thought you weren't. This requires listening during the other eleven months of the year, which is itself a form of investment.

For distant relationships, the honest move is abandoning the pretence of intimacy. You don't know your colleague's taste in literature or home décor. Accepting this limitation suggests a different category entirely: high-quality consumables. Food, wine, coffee. Items that get used rather than stored, that don't impose permanent aesthetic judgments, that acknowledge the relationship for what it actually is.

For relationships where the gift exchange has become pure obligation with no signal value at all, the intervention isn't opting out unilaterally (socially costly) but proposing different rules collectively. This requires initiative and timing, ideally well before the pressure begins. "What if we did something different this year?" is easier to navigate in September than December.

The residue of ritual

None of this eliminates the fundamental tension. We are social primates who maintain relationships partly through inefficient token exchange. This isn't going away, and perhaps it shouldn't. The alternative, purely transactional relationships with no symbolic dimension, doesn't obviously seem better.

But there's a difference between purposeful inefficiency and mindless waste. The peacock's tail is expensive, but it's precisely calibrated. Every feather serves the signal. What we've built around gift-giving is more like a peacock trying to drag an entire tree behind it: the signal is buried under noise, and everyone is exhausted.

The system will continue. The commercial pressures will intensify. The six-week window will fill with the same panic and the same generic purchases and the same polite disappointments.

But within that system, individual choices remain. You can burn resources in ways that send clear signals or muddy ones. You can match your investment to the actual depth of relationships or maintain fictions that serve no one. You can participate mindlessly or deliberately.

The gift was always supposed to be a signal. The question is whether yours is saying what you intend.