Thinking with Utility - How to Buy the Perfect Gift
Years ago, I was about as close to being homeless as you can possibly get. I was renting a tiny bedroom in a run-down apartment. My money came from government assistance, my groceries came from the food bank, and I was spending more than 100% of my income just on staying alive. If I was an airplane, you might have said I was in a death spiral.
Then I started studying economics.
When you’re unemployed, you’ve got a lot of time on your hands. But not having a job can lead to depression. And when you’re depressed, you don’t feel like doing anything productive.
It’s a tough thing to shake.
When I say I began studying economics, what mean is that I started watching Crash Course Economics on YouTube. I highly recommend watching this entire series. (I still re-watch it occasionally.)
While it’s not university-level learning, it’s a friendly series designed for beginners, supplemented with cartoons, and easy to digest.
Since watching those videos, I have devoured several textbooks, hundreds of articles, podcasts, and forum posts. I’m not an expert in the field of economics, I’m just a fan. And I’m always learning.
Once most people are finished school, they tend to stop learning. I recommend the opposite. Try to read, listen to, or watch something educational for a few hours once a week. It’s easier if you’re interested in the subject, and studying can make you feel like a kid again.
While the world is often chaotic, economics can help us to make sense of this chaos. It helped me understand the why and how of trade and markets. Why things work the way they do.
If you can develop a solid understanding of markets, then your predictions will be more accurate. Which helps with a lot of things, especially investing.
There are many important economic concepts, but the one I love the most is utility. Utility is how we measure the usefulness of things.
For example: A fork with no prongs has less utility than a mint condition fork. This is because it’s less useful for most tasks you would perform with a fork. Except maybe if you’re attacked in a prison yard, in which case a jagged fork might be more useful.
Utility can also be said to measure happiness. Economists have their own word for the imaginary happiness points that everything generates: Utils.
Everything you can think of has a util value. They can even be negative. If you’re allergic to strawberries, they might provide you with -50 utils, but if you love strawberries, they might give you 100 utils.
These numeric values were pulled from thin air. They always will be since no omnipotent entity has thus far presented themselves to correct us.
Utility is everywhere, and it’s represented in prices. (Often accurately, but not always.)
A ticket to a sports game that’s closer to the field provides a better view. This view is usually worth more utils to the end-user, so the price is higher.
The person who bought this ticket might also own a t-shirt with the sport’s team logo on it. They will pay a premium for this shirt over a blank t-shirt because the logo provides them with more utility.
When someone decides that the util value of something is worth than their money, they will trade their money for the thing, whether it’s a good or a service.
So how do we use this concept in real life?
Let’s say you’re trying to buy a gift for someone. You might ask their friends or family questions such as, “What do they like? What are their hobbies? What are they in to?”
This usually results in an outcome that creates some amount of utility.
Let’s say you know they like baseball.
If you buy a t-shirt with a New York Yankees logo on it for a Yankees fan, they will probably be pleased. (Assuming it fits.)
If you bought them a ticket to a game, this would likely create more happiness. The ticket, you believe, would provide them with more utility.
But what if they live in Alaska, they’re too broke to travel, and this ticket cannot be sold or given away?
This ticket is practically useless. What can the end-user do with it? Shove it in a drawer? Use it as kindling? Throw it in the air and yell, “It’s raining pinstripes!”?
None of these uses are worth what you paid for the ticket.
Price is what you pay, utility is what you get.
Some people think the perfect gift is cash. Cash has a lot of utility because the end-user can trade it for almost anything they want. But cash seems lazy, so we resort to gift cards.
“I heard you liked clothing, so here is a gift-card to your favorite store. Go buy a hat.”
While it’s impossible to know for sure, it’s estimated that 15%ish of gift cards go unused.
But how can the perfect gift go un-used?
It can’t. If the giftee doesn’t use your gift card, then either you misjudged their taste in retailers, they lost it, forgot about it, or it was accidently destroyed. Either way, it provided your giftee with zero utils. (Possibly negative utils if somehow your gift offended them.)
Gift cards also take time and energy to redeem. It might cost the giftee an entire afternoon and half a tank of gas just to redeem their gift card. If the store is far enough away, they might even lose money on this transaction.
Yikes.
Okay, so here is how to buy the perfect gift: You can’t.
It’s impossible to know what gift at your price-point will provide the giftee with the most utils. It’s impossible because the giftee themselves probably doesn’t know what it is.
Have you ever tried a food or drink you thought would be gross, but it ended up being great? That’s utility at work. All your life you misjudged the thing, but by never trying it you denied yourself some extra happiness.
This is why when I go to a new restaurant, I usually ask the server for recommendations. Over the years I’ve eaten tonnes of unique and delicious meals. Before studying economics, I would have never thought to try these. I would have just stuck to what I thought was safe.
This is called sampling. The more things you sample, the more likely you are to discover the thing that provides you with the most utils.
Gifts are a bizarre thing. If you write your friend a nice letter for their birthday, they might be annoyed that you didn’t spend any money on them. Even if in the letter you talked about five new artists that go on to become your friend’s favorite artists and provide them with years of happiness.
Most people don’t think in terms of utility. They think in terms of dollar amounts. This is not a healthy way to think. After all, wouldn’t you rather some give you $10 worth of something that makes you happy, instead of a $100 block of lead?
Generally speaking, if someone is more concerned about how much you spend on them versus how much happiness your gifts create, this is a person you avoid.
A great gift doesn’t have to cost a lot of money. A great gift just has to create a lot of imaginary happiness points. (Utils.)
I will admit that in the past I have been guilty of gifting people blocks of lead. Instead of focusing on utility, I bought them something expensive that I haphazardly thought they would like. The primary reason being that I personally would have been thrilled to receive such a gift.
Another weird thing about gifts is wrapping paper. A wrapped gift is usually more fun (has higher utils) than an unwrapped gift. Probably because it’s a surprise. The surprise creates utility. If you get them something they weren’t expecting, the surprise effect is amplified.
Surprise + Gift = more utils than just Gift.
So, if you really want to buy someone a great gift then you must surprise them. Take a risk. Buy them something they would never buy for themselves because they’re drastically underestimating the amount of utils it would provide.
For Christmas last year I bought my mom one of those Alexa home devices with a display. Never in a billion years would she have purchased one for herself.
But she loves it. She uses it all the time. She asks it for the weather. She asks it to play music. She asks it to perform simple calculations. It has improved the quality of her life.
Is it the perfect gift? Probably not. Given the amount of stuff available at the price-point of an Alexa, it’s probable that I could have bought her something else that provided her with more utility.
It wasn’t a perfect gift, but it was a good gift. It’s foolish to be frustrated at not achieving perfection, since perfection at most things in life is unknowable. Just try to do as good as possible.
To paraphrase a common saying, “Shoot for the stars, and settle for the Moon.”
Good is fine. Great is better. Perfect is a waste of time.
To recap:
Everything can be measured in utils.
The more utils something provides, the happier it makes us.
The price of something is not always reflective of how much utility it generates. (Price is what you pay, utility is what you get.)
Focus on creating utility and happiness will follow.
In a future article we’ll talk about how utility can be used to identify great companies to invest in.
Thanks for reading and good luck.
