The Wiki Man

How to pick the perfect present

And three examples

13 December 2014

9:00 AM

13 December 2014

9:00 AM

I had always attributed it to bad luck in the genetic lottery. I am three-eighths Welsh and a quarter Scottish, which is a rotten mixture: part Cavalier, part Roundhead. This means that every pleasurable experience I have in life is coloured by Calvinist guilt: in the remote likelihood that I were ever to find myself sitting in the grotto in the Playboy Mansion, my Welsh part would enjoy it while the Scottish part would be worrying about how much it cost to heat.

But it seems this guilt problem is nothing to do with my ethnicity: no human brain is remotely monolithic, but a bundle of conflicting modules cobbled together over millions of years of evolution. Very few decisions reduce to a simple question of cost versus benefit; instead, in every decision we encounter a weird mixture of guilt and anxiety and concepts of fairness and reciprocality inherited from earlier primates.

In the 1980s the behavioural scientist Richard Thaler invented an ingenious thought experiment. People were asked to imagine that they were on a deserted beach on a hot day. They have been there for a few hours and are seriously thirsty. A friend has spotted a place selling beer a few hundred yards in the distance and announces that he’s just off to fetch a bottle of beer for himself and can bring one back for you: ‘Let me know how much you are willing to pay for a chilled bottle of Heineken from that beach shack over there,’ he explains. ‘If the price is below your stated maximum, I’ll buy it. If it’s higher, I won’t.’

The typical answer, in 1980s dollars, was $1.50. Nothing surprising in that. What was strange was that, if you replaced the words ‘beach shack’ with ‘boutique hotel’ for a random selection of the people to whom you asked the question, the average price those people were willing to pay rose to $2.65.

In standard economic theory this makes no sense at all. After all, you are getting exactly the same experience either way — a bottle of chilled Heineken to drink on the beach. It’s either worth $2.65 or it isn’t. You are drinking it far from the hotel or shack, so its source should be irrelevant. Yet, although the pleasure is identical in either case, the price is wildly different.

Somehow we instinctively grudge paying a high price from a mere shack, but accept that swanky hotels have higher overheads and so allow them to charge more without feeling the same sense of resentment.

Thaler explains these discrepancies by proposing a simple distinction. He suggests consumers get two kinds of utility from a purchase: ‘acquisition utility’ and ‘transaction utility’. Acquisition utility is the pleasure (or pain) you get from consuming a thing, while transaction utility is the pleasure or pain you feel when actually buying it.

It’s an important distinction. It explains why people often make bad decisions while shopping in clothes sales — when the thrill of a deal, or ‘positive transaction utility’, outweighs the fact that the jacket doesn’t really fit. It also implies that there are things which people would enjoy owning, but which they simply feel too guilty to buy. I once bought a pair of cashmere socks by accident: they lasted for ages, and were easily the best socks I have ever owned, but I have never felt able to buy another pair. The acquisition utility was high, but the transaction utility was just too painfully negative.

The philosophical implications of this are rather odd. It seems to imply that people can sometimes be made happier if you give them less freedom of choice. That I might be made happier by being given cashmere than being given the equivalent in cash. If I actually have to pay for the socks with real money, the negative transaction utility of paying outweighs the pleasure I get from the socks.

The idea also suggests a brilliant formula for choosing Christmas presents. When deciding what to buy for someone, you should consider the object or experience which the recipient would definitely enjoy owning but which they would find painful to buy with their own money. Contrary to conventional logic, money can be a very bad present — people feel they should put it towards the gas bill. What people really like is something costing £50 which they want to own but don’t want to pay for.

So here are two technological devices which I thought were a fatuous extravagance when I bought them but which have given me unexpectedly high acquisition utility.

1) The Google Chromecast. At £30 or so it is a perfect price for a present. It allows you to take any film playing on your phone, tablet or laptop and beam it to your TV. This has a rather strange effect on my viewing habits, which have now bifurcated into the high-brow and the very low-brow. A Yale lecture on game theory followed by an hour of Russian dash-cam crash videos. But that’s a good thing really.

2) A sodding great portable battery to charge things when you are out. Such as the Anker® 2nd Gen Astro Pro 15000mAh Triple Port Portable Power Bank. The miraculous thing about this is that it has enough juice to charge a mobile phone six times over, so you don’t have to remember to charge it every night. I am, quite simply, sick of things that need to be charged overnight. Never mind a smart watch — even if someone offered me a Stepford Wife, my first question would be, ‘Does it need charging overnight? Because, if it does, I’m not bloody interested.’

A third option, and perhaps the best, is to buy people experiences rather than things. People feel more guilt spending money on experiences than they do on tangible things, but research on happiness suggests experiences create more happiness than we think. What I would like is London theatre vouchers. For me, a trip to the theatre always costs about £40 more than I feel comfortable with, so if I could offset this cost with vouchers it would enrich my cultural life.

Of course I know this plea will have no effect whatsoever, and on 25 December I shall be busily unwrapping a comedy WiFi-enabled musical mug-tree (batteries not included) — but at least I tried.

Got something to add? Join the discussion and comment below.

Rory Sutherland is vice-chairman of Ogilvy Group UK.

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Show comments
  • Jo Michelle Gardner

    Buy some cashmere socks off ebay and take a risk. Kill 2 birds with 1 stone.. The thrill you’ll get when and if you get that package! You know you want to. Happy Christmas!

    • rorysutherland

      I am off to do that right now……

      • rorysutherland

        Corgi – Welsh cashmere socks no less. In lilac, with burgundy stripes.

        • Jo Michelle Gardner

          Sounds funky

  • The Red Bladder

    Take the word of a man who has been around a long time, the one thing that our womenfolk really love as a Christmas present is pegs. They love ’em and they just can’t have enough of ’em.

    • Jo Michelle Gardner

      In this age of equality, I shall inform all your “womenfolk” what you really want for Christmas is Tea towels and a good pair of Rubber Gloves. I am sure they will be only too pleased to oblige. Is that okay?

  • Fraser Bailey

    Very true regarding negative transaction utility and presents etc. I recently did some work for a friend and she wanted to pay me. Instead, I asked her to buy me two books on Czech cinema and a biography of Alex Chilton, all of which I was desperate to read but would never pay for unless I saw them remaindered or second hand.

    And I have long said that the ideal present is something that someone desperately wants, but will not pay for.

  • Ted T

    There’s a funny phenomenon where Chromecast gives you £15 credit but doesn’t generally inform you of this before purchase!

    Had you been aware of this ex-ante, you would have been more likely to purchase one for yourself because the cost of the device is reduced.

    But if you only discover the credit ex-post, it’s just lost margin for Google. You perceived it as a surplus-generating transaction at £30 already and didn’t need the free credit!

    From another perspective, this bundling reduces the number of Chromecasts gifted as presents. Any people valuing the Chromecast itself between >=£15 and <£30 can no longer buy it as a present because the bundle returns all surplus to the person receiving the present.

  • Callan

    I sent Cameron and May copies of Londonistan last Christmas. Clearly they never even read the first page.

  • ‘reciprocality’ — eh? What’s wrong with ‘reciprocity’ (which a child would probably say is difficult enough)?

    By the way, the first problem with the test was that it mentioned Heineken. If you want to involve my higher instincts — or lower ones — it at least has to be an I. P. A.!

    were easily the best socks I have ever owned, but I have never felt able to buy another pair
    Well that’s just irrational, and I hope you’ve got over it. Listen, my mother-in-law is a rich New Yorker from a Brooklyn cop-and-nurse background, and I know all about it. Taxis are evil, even though buses are both more dangerous and more exhausting after an international flight. She could throw her money out the taxi window at every avenue and not notice the shortfall. Doesn’t matter: taxis are evil, ALWAYS. Then there’s toilet paper. You never just BUY toilet paper: you comparison-shop and get it from Duane Reade. When I consider my relatives in aggregate, on both sides, it’s a wonder I’m sane.

  • ‘want to own but don’t want to pay for’

    Whereas my brother spent $8 CDN to send me a made-in-India 50-cent bell for the collar of a woolly mammoth in the hope that I would like it for my dog, who is a girl and never wears a collar except when on a lead. And even then, I’d hardly put that millstone around her neck! This is a man that spent upwards of $50 CDN to have me mail him some elite Italian cycling accoutrements, of course (they’re not sold in Canada). It’s not as though he’s poor.

    The more I live, the more I realize I’m alone.