Omiyage & Predictably Irrational
Recently, I took a trip to the lovely Japanese town of Echigo Yuzawa. Well-known for being a ski resort, it also magnificent in the summer. You can take a gandola and have a great time enjoying the scenery of the mountain. The city has has fabulous not-to-pricey food as well as great sake. There's a place at the train station you can do sake tasting for about $1 per shot. Needless to say, the fun started real quick! Now we only had time for a 2-day 1-night trip and there was plenty for us to see, eat, and we also had to relax in their fabulous onsens (hot springs). Unfortunately for our short trip, my girlfriend and I had to buy a lot of small gifts to bring back to town to friends and coworkers. These little gifts are called 面倒臭い (omiyage) and is a mandatory social convention in Japan when taking trips. Thus, a large majority of our trip was spent on buying "omiyage" for our friends and coworkers.
Of course Japan is not alone when it comes to the social obligation of giving gifts. And I admit, when I was a kid, I loved to receive gifts (kids don't really have to give gifts). As an businessman and economist, I feel like gift-giving is senseless. Last Christmas, I bought my girlfriend a coat for $300 and she pretty much never wears it. Not only did we lose out on $300 of utility due to my poor taste, but I lost a lot of time in having to pick the gift out. Why didn't I just give her $300? (I can assure you this would not have been a good idea). On top of that, I made her feel like she was obligated to wear a coat she did not like, which means she may have gotten negative utility out of it. Actually, Sheldon Cooper of the Big Bang Theory sums up my sentiment very well:
The entire institution of gift giving make no sense. Let's say that I go out, and I spend 50 dollars on you, it's a laborious activity, because I have to imagine what you need, where as you know what you need. Now I could simplify things, just give you the 50 dollars directly, and you could give me 50 dollars on my birthday, and so on, until one of us dies, leaving the other one old and 50 dollars richer. And I ask, is it worth it?
Ariely has studied a lot more about gift-giving than both Sheldon Cooper and myelf. From the field of behavorial economics, Ariely has conducted experiments on gift giving. He starts the chapter on gift-giving with an anecdote similar to mine. He says that his mother cooked him a wonderful thanksgiving meal, and so he peeled off $300 as was his price for the meal and gave it to her. Well his mom was very angry and discontinued cooking him delicious Thanksgiving meals. That's not actually what happened. He actually bought a $75 bottle of wine (she wouldn't have known if it was $75 or $20) and all was fine and dandy. So what is it about gifts that are better than money? In Ariely's experiment, he asks people to perform simple tasks for him. There are three groups of people:
- People paid comparably high wages
- People paid close to nothing (1 cent)
- People working for free
Now anyone who knows anything about behavioral economics knows the 3rd group will perform better. But surprisingly, the second group performed very poorly. So his finding was that just the mention of money makes people work less. If you want to lose your girlfriend, start keeping track of how much you are spending on her and let her know exactly how much she costs you. When we monetize things, we change how people think about the situation.
Now how do I feel about omiyage
I'm atrocious at choosing gifts which is why I hate it. I'm sure my coworkers will get less monetary value out of the gifts I give them compared to what I paid just because I am that bad. However, there was a joy in handing out gifts to my coworkers. And there is also reciprocity when your coworkers give a gift back in the future and you feel good about it. Something that wasn't measured was the social value of gift-giving. How much would you pay for your coworkers and friends to like you a little bit more? How much would you pay to show your Mom you appreciate her thanksgiving dinner? This is what social convention is all about and actually, it feels very good. Ariely points out that there are times to think about money and times when you absolutely should not. Social situations are times when introducing the concept of money will make people think differently about you. So actually, for a company to boost morale, the social tradition of buying people omiyage is actually a very good one!