Although giving gifts has a prestige and social status function and is therefor not entirely “rational” in the classical sense of the word, it nevertheless has some interesting economic implications. Here is how to give a good gift considering economics.
Efficiency
“I know best what I like best, or at least better than the next one or thing.”
Try to use the information available to you to give a gift that fits well with the recipient — they probably have enough socks and ties. Instead, show them that you care about them by researching them ahead of time,
- What do they post on their favorite social media site?
- What can’t they stop talking about with you?
- Which books do they read?
- Do they have a favorite artist?
- What kind of gifts did they appreciate in the past?
Signaling
By choosing an efficient gift by using the available information, you can minimize the deadweight loss of gifting. That is the first lesson of the economics of giving gifts. But you can also add (a lot of) emotional value with thoughtfulness and effort. Try to think of a gift that evokes some positive emotion.
- Love
- Appreciation
- Respect
- Care
It does not have to be a gym membership, but a common experience such as visiting an event together, or a common day at the spa might do the trick. The important part is the proof of work.
Information Advantage
If you think you have knowledge that the recipient would like to use, but does not possess, the application of that knowledge is a perfect gift opportunity.
- You know how to get a better price
- You are able to get an otherwise unavailable item
- You know how to get a better quality product
- You can use an opportunity, that the receiver would have missed otherwise
- You can tailor the product to the receiver’s needs
If you are careful not to succumb to hubris (try to subtly ask for the receiver’s preferences) you can gift an excellent present. Otherwise, some form of cash is the rational choice.
Now you understand the economics of giving gifts, when you consider the other’s preferences to make the gift efficient, signal positive emotions like attention or care, and use any information advantage you might have.
Happy holidays!
