The Christmas season brings with it a tradition of gift-giving. With it, consumers are presented with a classic economic problem. Consumers seek to maximize the utility the gift recipient receives from their gift. They also seeks to spend less than their budget constraint for that gift. To improve the quality of the gift they purchase, the gift giver may use information about the recipient. Additionally, they may seek out additional information about the gift recipient’s tastes from their social network.
Intuition says that having more information about a person may allow you to give a better gift to him or her. But that might not actually be the case. Consider the following questions:
- Given the same budget, would you give a different gift to your mother as you would to an anonymous mother of the same age?
- If you knew your best friend one year longer than you do already, would you be able to give them a better gift?
With new information, there exist dramatic decreasing marginal returns in gift-giving. In general, each additional piece of information about a recipient is generally less valuable to the giver as the previous piece of information.
What do users on Twitter think about gift-giving?
A very small sample provides an inconclusive result.
If you’re struggling to buy someone a gift this holiday season, you can rest assured: it probably isn’t representative of the quality of your relationship.
Enjoyed this post? Although I haven’t read it, a Yale professor has devoted an entire book to the economics of gift-giving. Find it here. Enjoy.