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Does Consumer Irrationality Trump Consumer Sovereignty? Evidence from Gifts and Own Purchases

26 Pages Posted: 5 Feb 2003  

Joel Waldfogel

University of Minnesota - Twin Cities - Carlson School of Management; National Bureau of Economic Research (NBER); University of Minnesota - Twin Cities - Department of Economics

Date Written: October 2002

Abstract

Scholars working on the border of economics and psychology have assembled an impressive body of evidence that consumer behavior is not fully rational. As a result some observers (see Kahneman, 1994) question whether consumer choice warrants deference. We address this question by asking whether consumers or others are better situated to make consumption choices. Based on a new survey of both holiday gifts and items consumers purchase for themselves, we present direct evidence that consumers' own purchases generate between 10 and 18 percent more value, per dollar spent, than items received as gifts. Our estimates therefore support economists' faith in consumer sovereignty, place some limit on the reach of the behavioralist critique of economics, and, in addition, confirm the substantial deadweight loss of Christmas.

Keywords: consumer choice, rationality, deadweight loss of Christmas

JEL Classification: D12

Suggested Citation

Waldfogel, Joel, Does Consumer Irrationality Trump Consumer Sovereignty? Evidence from Gifts and Own Purchases (October 2002). Available at SSRN: https://ssrn.com/abstract=337261 or http://dx.doi.org/10.2139/ssrn.337261

Joel Waldfogel (Contact Author)

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Minnesota - Twin Cities - Department of Economics ( email )

271 19th Avenue South
Minneapolis, MN 55455
United States

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