Attracting a fair amount of press coverage recently has been the publication of a book Scroogenomics: Why you shouldn’t Buy Presents for the Holidays by Joel Waldfogel. In it, Waldfogel argues against buying gifts at Christmas, suggesting that people consistently value the gifts they receive as less than their actual cost.

“When other people choose for us they do a poor job compared to when we choose for ourselves,” explains Mr Waldfogel, and calculates that “dollars on gifts for you produce 18 per cent less satisfaction, per dollar, than dollars you spend on yourself.” As an economist, Waldfogel views this as value destruction, to the tune of about $12 billion per year in the US alone.

There’s some interesting ideas here, and it’s tempting to think that it leads to the conclusion that cash makes a better gift choice than a present. However, studies have consistently shown that cash gets absorbed into satisfying needs rather than wants, making it harder to justify buying something they really want. ‘Buyers remorse’ is the name for the guilty feeling that people feel for treating themselves.

Waldfogel isn’t a total miserypants – “my beef is not with level of spending at Christmas but rather with the waste that this generates”, and acknowledges that presents, if well chosen, can actually add value,

Interestingly, Waldfogel proposes that giftcards could potentially be a less wasteful way of giving, if the amount that is wasted via non-redemption (euphemistically called ‘breakage’ by the voucher industry), could revert to charitable donations when they expire. But there is a greater chance of Christmas being cancelled before retailers adopt this practice,

We believe that our online points system iD-points provides the best of both worlds. It provides a mean for a recipients to choose their own gift, and get something they really want but without the buyers remorse that comes with cash. Recipients have no alternative but to treat themselves with great products from leading brands.

With the Olympics on our screens at the moment, it’s interesting to see how much winning a shiny gold disc means to people.

Tennis player Raphael Nadal, for instance, has little to prove in the world of tennis, already having established his dominance this season, and earned a small fortune to boot. But winning an Olympics medal brings a special recognition that a mountain of cash cannot replace.

The same is true of incentives. Cash is a poor incentive because it becomes a form of compensation. It goes straight into the bank account, and thus there is little recognition of the recipients achievements and acknowledgement of their efforts.

A more tangible reward, whether it is an honour such as a medal or trophy, or a prize product, carries with it a kudos that can be proudly used and displayed. For a product reward, say a watch or an iPod, it becomes a prized possession, and a constant reminder to everyone of the acheivement.

Meanwhile, some countries do actually reward cash for athletes receiving Olympics medals. It’s a policy that has been adopted at Beijing by Canada, with $20,000 for gold medal winners, and proven a runaway success judging by their massive haul of 2 golds so far. Far better is the Belarus approach – spurring weightlifter Andrei Aramnau to break three world records in his quest for Olympic gold and the promise of free meat sausages for life. And the Mayor or Mansfield has promised UK double gold medal swimmer Rebecca Adlington a pair of Jimmy Choos on her return to Britain.

As reported in the Observer, the British government is proposing to give a grant of £120 to pregnant women:

“All expectant mothers are to be given a one-off payment of around £120 that they will be encouraged to spend on fresh fruit and vegetables as a way of protecting their children from diseases and incurable conditions later in life.”

Not only is this totally misguided from a health and nutrition viewpoint, but from a motivational and incentives perspective it is hopelessly flawed.

“The payment – the first by a government that is allied to a specific health target – would be given to women when they are seven months pregnant. It would be linked to them receiving professional health advice on how to maintain a proper balanced diet, and give up drinking and smoking.”

Unfortunately, as it is a cash payment, it means the money could just as easily be spent on booze and cigarettes. Being a one-off payment during the seventh month of pregnancy will do little to counteract a poor diet in the preceding month. Fruit and veg might be good for you, but they are not a magical elixir that can undo years of poor diet. The Observer article continues:

“There is also little published research to show that a financial incentive, combined with nutritional advice, is sufficient to persuade mothers from the most deprived areas to change their lifestyle.”

This government badly need some advice on incentives. They need to understand that, as previously discussed, not only is cash a very poor incentive, but motivation comes from regular, sustained activity, not one-off payoffs.

What would be more likely to achieve the result the government want? A one-off £120 cash payment, or a monthly box of organic fruit and veg from a home-delivery box provider such as Abel and Cole, accompanied by supporting information and literature?

A new version of Hasbro/ Milton Bradley’s Game of Life boardgame offers other rewards than money.

“When it launches this summer, Hasbro, Inc.’s new THE GAME OF LIFE: Twists & Turns Edition will be the first major board game in America to replace cash with a Visa-branded card as the preferred form of currency. Visa will also provide financial literacy enhancements within the game to teach children and consumers of all ages the benefits of proper money management.”

But, more fundamentally:

“The winner is no longer the person who accumulates the most money, but rather earns the most “life points”, which is a combination of wealth and life experiences.”

It seems that even Hasbro have realised that cash is a poor incentive.

Incidentally, there’s a short history of Milton Bradley and the Game of Life on the New Yorker