A white elephant gift exchange, also known as a Yankee Swap or Dirty Santa, is a game played by people with a sense of humor and little interest in the actual gift. Each guest is supposed to come with a gift or present, which is usually something of little value. What happens next is what makes the elephant exchange different from Secret Santa parties.
Explain on the party invitations what the rules are for the gift. The rules should specify a price limit, and that the gift is wrapped. Have a designated place for each guest to leave her gift when she arrives at the party.
Pass around a hat with numbered pieces of paper (one number for each gift), and have each guest draw a number.
The person who draws "1" gets first pick from the pile. She must open her gift for everyone to see.
The guest with "2" can pick another gift from the pile, or he can "steal" the first person's gift. If the second person chooses to steal the first persons gift, the first person gets to choose another gift from the pile.
The person who drew "3" goes next, and must choose between stealing one of the first two gifts or choosing a new gift from the pile.
The game continues in this manner until everyone has a gift. No single gift can change hands more than three times.