Gifts: Thoughtful or a waste of money?
From a standard economic perspective, gifts are a waste of money. Imagine that you invite me over for dinner one day and I decide to spend $50 on a bottle of wine. There are a bunch of problems: To start, I am not sure what wine you would like the most. And besides, maybe you’d prefer something else, like a book, a DVD, or a blender. This means that the bottle of wine that cost me 50 dollars might be worth, at most, 25 dollars to you.
If gift-giving were rational I would come to dinner and tell you, “Tom, thanks for inviting me for dinner. I was going to spend $50 on a bottle of wine, but realizing that this might provide you with only $25 of benefits, here is the cash instead and you can decide how best to spend it.”
(Or even better, maybe I would split the cost and offer Tom $37.50, making both of us better off.)
But, despite the realization that gifts are economically inefficient, I don’t suspect that many people will follow this advice. Why? Because even though a cash gift is more economically efficient, it will in no way endear you to your host.
For example, if the day after the dinner party you find yourself in a bind and need some help moving a sofa, the odds are that a host that you gave a gift to will step in to help. But what about the host that you gave the efficient cash gift to? Wouldn’t his logical response to your request for help be, “How much are you offering me for my time?”
The point is that while gifts are financially inefficient, they are an important social lubricant. They help us make friends and create long-term relationships that can sustain us through the ups and downs of life. They are in fact efficient because they help us create the social fabric we so depend on.
It turns out that sometimes a waste of money is worth a lot.
Dan Ariely
Posted by: maria cat | Jun 18, 2021 4:50:48 PM
AMAZING! Dan Ariely rocks. going to get this book asap!
Posted by: Lisa | Jun 21, 2021 11:15:01 AM
I disagree. Depending on the persons "income" level, a gift would be a good idea...if you/they have money to waste anyway. However, don't waste money for a $50. bottle of wine on someone in a "low" income level that won't appreciate it. Also, being the person I am, I HAVE offered money to friends when I was moving. THEY asked for beer instead. So, I bought the beer of their choice. (By the way, I would have given them more money than the beer was worth.)
Posted by: kerianna | Jul 1, 2021 3:08:36 PM
How about giving a gift from the heart without expecting a return on your investment or advancement in your social standing? Basing what you give on the receiver's income doesn't guarantee it will be appreciated.....I firmly believe that just because you have cash doesn't mean you have class.
When I give a gift its because I want to...and not because I ought to. I most certainly don't take into consideration whether they're high or low income. If anything my high income friends might be more likely to receive a hand made gift as they seem to have everything they need anyways...and something non mass produced can hold alot of meaning. A gift should come from the heart, have that personal touch, and be chosen with the person you are buying it for in mind. Basing a gift on the "income status" of the receiver just makes it shallow and I'm sure most people would prefer you don't bother if that were the case.