When it comes to seasonal holidays, Halloween has a special place in the hearts of Americans. From a social science perspective, consumers’ excitement to spend big money on a public festivity is a curious phenomenon. That’s because such behavior goes against what is commonly known among economists as the “free rider problem.” The theory goes that consumers will spend less on certain items when they think that their neighbors will take on the weight of the expense—why splurge with your own money when you think the rest of your community will take care of it? In a non-holiday application, this kind of thinking makes it hard to efficiently provide public goods by collective contributions, such as in the context of military defense services or the maintenance of public parks.
Not so with Halloween. The spooky holiday turns the free rider problem into a competition between households to out-do each other in costume choice, exterior decoration, and sweets for the kids that go from door to door to demand “trick or treat!” Instead riding on the coat tails of your community, you want to one-up them. [...]
So why do consumers spend exceptional amounts on Halloween goods during election years? One of the most citied concepts in modern economics is the “permanent income hypothesis,” which was coined by Milton Friedman. It states that individuals make consumption decisions based on present economic conditions as well as future expectations over how the economy will turn out. Take a look at the below chart, noting the US presidential-election years in 2008, 2012, and 2016. [...]
But the season is not solely based on costumes and candy anymore—it’s all things pumpkin-themed. In fact, pumpkin-flavored product sales across the industry totaled over $360 million in 2015, including the sales of Starbucks’ pumpkin-spice lattes, which have increased 13 times from 2014. Forbes estimates that total sales of pumpkin goods will increase to more than $500 million in 2016.
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