My previous two posts were on gifting as a substitute for sale. This one is on gifts given without the expectation of a gift in return. Economists find the practice of giving gifts puzzling. We expect individuals to know more about their own preferences than other people do so it would seem that a gift in money, which I can use to buy whatever I most value, would almost always make more sense than a gift purchased for me. There may be exceptions, cases where the giver happens to have special knowledge that the recipient does not, but it is hard to see how they can explain the amount of gift giving we actually observe.
Gift-giving can add a narrative to an object. A model train set can be "proof Daddy cares about my hobbies and wants me to have fun." A merely decorative ring is transformed into "The ring awarded to me by Duke Cariadoc at the Pennsic Bardic Circle for my tale of Pharaoh Sesostris." The latter probably leads to additional storytelling.
There is no amount of money that conveys the same signal to someone as actually knowing them well enough and getting a gift for them that they want. You cannot simply spend the money equal to the value of a gift plus your time in finding the gift, because humans aren't homo economicus. This will convey that you are a weirdo who doesn't understand norms and human emotions, even if it also conveys that you are well-disposed toward the recipient.
I think you are on the right track when you point out that that utility should not be counted as just one thing, but I think it may be more correct to model it as a basket of goods that you want to satisfice or maximize that can only be traded off against each other with some difficulty.
Another example: If you want to have sex with your wife, but she is not in the mood, she cannot make you equally happy by giving you 100 bucks (or whatever the going rate is). You have no numerical sense of utility that's happy trading for the same amount of utility, you want sex with your wife.
She might be able to make me happy by doing something for me that signals that she really loves me, just isn't in the mood for sex. Even non-sexual cuddling might do it.
What's happening in that situation is not mainly that I am unhappy about not having sex right now but that I see her refusal as a signal of problems with the relationship. Absent that signal, she could make me equally happy by making my favorite dish for dinner.
In South Korea, there’s a saying “the best gift is money” and in many situations where Americans would give gifts Koreans give cash. Elders frequently give younger family members red envelopes with cash on certain days, and slightly older members over a certain age give red cash envelopes to elders, even if the elders don’t need the money. It’s also customary in certain days for children of to give gifts to their parents; for adult children these will often be gift certificates for restaurants or hotels. I suspect these adult child to parent gifts to be somewhat status related as I’ve absorbed young adults discussing and comparing the taste, luxury, and quality of these gifts usually in an objective way rather than related to their parents personal preferences. Spontaneous gifts from adult children to parents tend to be more personal (for instance when giving a gift after traveling abroad, usually the items will be carefully selected based on the parent’s personal tastes). There’s also very high taxes on gifts in South Korea - which might partly explain the vibrant local cash economy.
My own opinion is you’re on to something regarding the importance of culture. South Korea is heavily influenced by a very traditional Confucian way of thinking. Unlike China which had a cultural revolution, the only break in Korean Confucian culture is the Japanese occupation. Americans are very democratic and equality minded compared to Koreans, possibly due to the influence of Christianity. I’m not knowledgeable about European culture so cannot make any comment there.
Is there anything to this idea? I can’t frame it rigorously, but imagine a simple model of gift-giving where it is always (a) a reciprocal obligation between two people, and (b) the value of expected gifts is equivalent between the two. In such a model, there seems to be no function of a cash exchange. You give me $100 cash and I give you $100 cash and it’s equivalent to nothing having happened at all. If we give each other non-cash gifts of the same value, by contrast, something at least has happened—we are each sort of transforming $100 into that amount worth of the “short-term” enjoyment of a gift that we might not have chosen to do in the absence of the gift obligation. But is there something to the idea that a bilateral, mutual gift obligation can’t possibly have any effect, because the two money “gifts” always simply cancel each other in a way that in-kind exchanges of goods do not?
My understanding is that gift giving was a major part of relations between states back in the day ie middle ages. I am thinking of eg China's relationship in its capacity as regional superpower and countries like Japan and Korea. From what i can gather this was in effect a form of trading. I really must read more about this!
I think the Chinese attitude was that everyone else was a tributary state to them, that the gifts given to them were tribute, the gifts they gave to others were gifts.
Two other possibilities and a point about anecdotal evidence:
1. Perhaps our introspection is a bad guide to what we are really doing. If we were evolved to get good feels from satisfying others’ needs, that makes groups of humans more likely to survive by evening out everyone’s consumption. We could be picking what to give on a misguided sense of what will be most beneficial to the recipient.
2. Overlapping with that story, perhaps our instincts about gift giving fail to connect with money. Money is a pretty recent invention and humans often are not great with it in odd ways (like time preferences). In particular, if we can’t see someone consume the gift we gave, maybe that doesn’t satisfy the instinct, and the use of the money we give happens offline, if you will. That might also explain “let me show you what I got with the money you gave me.” After all, no one sends $100 to your mortgage company directly, even if that’s actually your highest need.
Anecdotally, we do have a cultural story about busy professional parents giving checks to their kids instead of actual gifts. And note, when I got to the end of the immediately preceding sentence, I said “huh, saying ‘actual gifts’ kinda puts the rabbit in the hat, but that’s what my monkey brain said, so I’m sticking with it.”
The attitude to money in my culture (contemporary American) is odd. There are a lot of contexts in which a payment in money is seen as worse than a payment in kind. The obvious example is a man taking a woman out to a good restaurant or giving her jewelry in the hope that she will reciprocate by going to bed with him. Doing that is a little iffy at present, although I think not in the recent past, but offering cash for the same purpose is and was a serious insult. But oddly less so if the cash is for an urgent need — if she can't afford to pay her rent this month and he offers to do it for her.
There are basically two approaches to explaining things like this. The one I prefer is to assume that the behavior can be explained by rational self-interest and try to figure out why. The alternative to assume that there is some special characteristic of people's preference, decision mechanisms, or something else inconsistent with rational self-interest, deduced from observation or evolutionary arguments. That is less satisfactory because it's less constrained — once you abandon rational self-interest you can explain almost anything by suitable assumptions. But it might be the right answer.
Very interesting discussion. I wrote a while ago on the history of economics research on gift giving. Basically, gifts generate about 20 to 35% value (i.e. gift recipients value even simple gifts about 20 to 35% more than cost). This finding is interesting as it would put some of the utility value in the recipients utility function rather than the gift givers.
Interesting. I wonder if the results are being distorted by the endowment effect. If the gift had been money and the money used to buy something the auction price might still have been more than the purchase price.
It's also possible that the auction value is inflated by the gift recipient's concern that the donor might ask about the gift and be offended if it had been sold.
Some years ago my brother was trying to figure out the perfect gift for people who have their own adequate income streams. And, on a theory similar to yours of the giver targeting the receiver’s short-term rather than long-term self, he settled on… lottery tickets.
Something the recipient’s long-term rational self probably wouldn’t buy, but which would entertain the short-term self. And if it happens to pay off, the recipient now has a bunch of money to spend, together with an excuse for spending it “unwisely” (it’s an un-anchored windfall; if you completely waste it, you’re no worse off than in the _status quo ante_).
That’s quite clever. What was the response of the recipients? I take it that these were typically small presents, so he didn’t need a shoebox to give them in?
When I had a corporate job, one of the minor things the corporation did was to buy lottery tickets once a year for all the employees. And every year I would seek out one of the people involved in organizing this, and hand my ticket back, explaining that I didn't buy lottery tickets for myself and didn't want to participate in one even if it cost me nothing. Gambling looks to me like an addictive form of irrational thinking, and it's an addiction I don't want to expose myself to; for me, lottery tickets had negative utility.
Another reason to not give cash, or overly generic gift cards (Walmart?), is that they're uninteresting. You can either open a gift with immediate use-value (or at least let your imagination run with what you could use it for, something to fixate on), or a card with some cash that you'll have to take to do your own shopping in order to find what you want or need.
Of course, the value of that cash is highly variable. In It's a Wonderful Life, cash was the best possible gift because of a significant cash shortage. Giving a durable good of the same value to George Bailey would have been supremely unhelpful, and he would have gone to jail.
And your daughter is right - cash and gift cards make a lot more sense today due to the ease of modern shopping. If you give me $10 I can find a thousand ways to spend that and have it delivered to my house or maybe even buy it digitally online with immediate response. For most of history, gifts would have been closer to the silver handmade items you give for extraordinary performances - rare and difficult to get. I doubt too many people gave out perfectly ordinary items in 1242AD either, it's just that "ordinary" covers a lot more ground today than it did then.
> The idea that giving a gift shows you were willing to go to the trouble to find one seems even less persuasive. Why not simply send a check equal to the value of the gift you would have found plus the value of the time you would have spent finding it?
Giving gifts, at least among people who don't depend on them as a means of living, serves to demonstrate that the giver is willing and able to know the other person's complex problems, by demonstrating knowledge of their complex preferences. Some problems can't be solved with money, like relationship problems, and what we want from our friends is not a willingness to make a thousand dollar cash transfer (when would we need that? If I ever need money beyond what institutions will lend me, it's going to be too much for me to expect from a friend,) but rather broad and practicable understanding of our lives and the balances we navigate with other friends. I'd rather you show that you can think about me when I am not around to represent myself, than to have another low-interest line of credit up to $100.
If you want it in economic language, it's a test run carried out between friends of their ability to solve the principal-agent problem.
That's getting close to my argument about the gift as a signal of altruism because a suitable gift is evidence of knowledge of the recipient's preferences, knowledge an altruist has reason to acquire.
Altruism is different from representation. A congressman with 90% approval in his own district and 10% outside of it, or a biker who fights for his gal, are good representatives but not altruists. If I find a used book that you really enjoy, I am representing you effectively at the used book store; even if it cost me very little. If I donate $10,000 to an effective charity and later tell someone I don't have anything to give them, I am being an altruist but not a representative. I have think that gifts in our culture have a lot more to do with representation than with altruism.
"Altruist" as I use it, following Becker, doesn't mean someone in favor of good things for other people in general, it means someone in favor of good things for a specific person, in Becker's model someone whose utility function includes as one argument the utility of a different person.
Oh, that makes sense then. In that case I guess my emphasis is on the way selecting a gift well demonstrates the ability to act altruistically in situations where the other person's interest can be hard to discern (like relationship issues), while a fifty dollar bill demonstrates the ability to spare fifty dollars, the former being rarer and more valuable among middle class Americans than the latter. Both demonstrate altruism equally as measured by degree of personal sacrifice which is how you'd guess at the factor in front of your idea of the other person's utility function in the sum that is your own, but the former demonstrates more about how accurate your idea of your friend's utility is.
Gift-giving can add a narrative to an object. A model train set can be "proof Daddy cares about my hobbies and wants me to have fun." A merely decorative ring is transformed into "The ring awarded to me by Duke Cariadoc at the Pennsic Bardic Circle for my tale of Pharaoh Sesostris." The latter probably leads to additional storytelling.
There is no amount of money that conveys the same signal to someone as actually knowing them well enough and getting a gift for them that they want. You cannot simply spend the money equal to the value of a gift plus your time in finding the gift, because humans aren't homo economicus. This will convey that you are a weirdo who doesn't understand norms and human emotions, even if it also conveys that you are well-disposed toward the recipient.
I think you are on the right track when you point out that that utility should not be counted as just one thing, but I think it may be more correct to model it as a basket of goods that you want to satisfice or maximize that can only be traded off against each other with some difficulty.
Another example: If you want to have sex with your wife, but she is not in the mood, she cannot make you equally happy by giving you 100 bucks (or whatever the going rate is). You have no numerical sense of utility that's happy trading for the same amount of utility, you want sex with your wife.
She might be able to make me happy by doing something for me that signals that she really loves me, just isn't in the mood for sex. Even non-sexual cuddling might do it.
What's happening in that situation is not mainly that I am unhappy about not having sex right now but that I see her refusal as a signal of problems with the relationship. Absent that signal, she could make me equally happy by making my favorite dish for dinner.
In South Korea, there’s a saying “the best gift is money” and in many situations where Americans would give gifts Koreans give cash. Elders frequently give younger family members red envelopes with cash on certain days, and slightly older members over a certain age give red cash envelopes to elders, even if the elders don’t need the money. It’s also customary in certain days for children of to give gifts to their parents; for adult children these will often be gift certificates for restaurants or hotels. I suspect these adult child to parent gifts to be somewhat status related as I’ve absorbed young adults discussing and comparing the taste, luxury, and quality of these gifts usually in an objective way rather than related to their parents personal preferences. Spontaneous gifts from adult children to parents tend to be more personal (for instance when giving a gift after traveling abroad, usually the items will be carefully selected based on the parent’s personal tastes). There’s also very high taxes on gifts in South Korea - which might partly explain the vibrant local cash economy.
My own opinion is you’re on to something regarding the importance of culture. South Korea is heavily influenced by a very traditional Confucian way of thinking. Unlike China which had a cultural revolution, the only break in Korean Confucian culture is the Japanese occupation. Americans are very democratic and equality minded compared to Koreans, possibly due to the influence of Christianity. I’m not knowledgeable about European culture so cannot make any comment there.
Is there anything to this idea? I can’t frame it rigorously, but imagine a simple model of gift-giving where it is always (a) a reciprocal obligation between two people, and (b) the value of expected gifts is equivalent between the two. In such a model, there seems to be no function of a cash exchange. You give me $100 cash and I give you $100 cash and it’s equivalent to nothing having happened at all. If we give each other non-cash gifts of the same value, by contrast, something at least has happened—we are each sort of transforming $100 into that amount worth of the “short-term” enjoyment of a gift that we might not have chosen to do in the absence of the gift obligation. But is there something to the idea that a bilateral, mutual gift obligation can’t possibly have any effect, because the two money “gifts” always simply cancel each other in a way that in-kind exchanges of goods do not?
I usually give "stretch" gifts -- something I think the recipient might enjoy but might not realize that he will enjoy ut unless he tries it.
My understanding is that gift giving was a major part of relations between states back in the day ie middle ages. I am thinking of eg China's relationship in its capacity as regional superpower and countries like Japan and Korea. From what i can gather this was in effect a form of trading. I really must read more about this!
I think the Chinese attitude was that everyone else was a tributary state to them, that the gifts given to them were tribute, the gifts they gave to others were gifts.
Two other possibilities and a point about anecdotal evidence:
1. Perhaps our introspection is a bad guide to what we are really doing. If we were evolved to get good feels from satisfying others’ needs, that makes groups of humans more likely to survive by evening out everyone’s consumption. We could be picking what to give on a misguided sense of what will be most beneficial to the recipient.
2. Overlapping with that story, perhaps our instincts about gift giving fail to connect with money. Money is a pretty recent invention and humans often are not great with it in odd ways (like time preferences). In particular, if we can’t see someone consume the gift we gave, maybe that doesn’t satisfy the instinct, and the use of the money we give happens offline, if you will. That might also explain “let me show you what I got with the money you gave me.” After all, no one sends $100 to your mortgage company directly, even if that’s actually your highest need.
Anecdotally, we do have a cultural story about busy professional parents giving checks to their kids instead of actual gifts. And note, when I got to the end of the immediately preceding sentence, I said “huh, saying ‘actual gifts’ kinda puts the rabbit in the hat, but that’s what my monkey brain said, so I’m sticking with it.”
The attitude to money in my culture (contemporary American) is odd. There are a lot of contexts in which a payment in money is seen as worse than a payment in kind. The obvious example is a man taking a woman out to a good restaurant or giving her jewelry in the hope that she will reciprocate by going to bed with him. Doing that is a little iffy at present, although I think not in the recent past, but offering cash for the same purpose is and was a serious insult. But oddly less so if the cash is for an urgent need — if she can't afford to pay her rent this month and he offers to do it for her.
There are basically two approaches to explaining things like this. The one I prefer is to assume that the behavior can be explained by rational self-interest and try to figure out why. The alternative to assume that there is some special characteristic of people's preference, decision mechanisms, or something else inconsistent with rational self-interest, deduced from observation or evolutionary arguments. That is less satisfactory because it's less constrained — once you abandon rational self-interest you can explain almost anything by suitable assumptions. But it might be the right answer.
I have an old article you might find of interest on evolutionary biological explanations for apparently irrational behavior: http://www.daviddfriedman.com/Academic/econ_and_evol_psych/economics_and_evol_psych.html
Very interesting discussion. I wrote a while ago on the history of economics research on gift giving. Basically, gifts generate about 20 to 35% value (i.e. gift recipients value even simple gifts about 20 to 35% more than cost). This finding is interesting as it would put some of the utility value in the recipients utility function rather than the gift givers.
https://www.nominalnews.com/p/christmas-holidays-and-gift-giving
Interesting. I wonder if the results are being distorted by the endowment effect. If the gift had been money and the money used to buy something the auction price might still have been more than the purchase price.
It's also possible that the auction value is inflated by the gift recipient's concern that the donor might ask about the gift and be offended if it had been sold.
Some years ago my brother was trying to figure out the perfect gift for people who have their own adequate income streams. And, on a theory similar to yours of the giver targeting the receiver’s short-term rather than long-term self, he settled on… lottery tickets.
Something the recipient’s long-term rational self probably wouldn’t buy, but which would entertain the short-term self. And if it happens to pay off, the recipient now has a bunch of money to spend, together with an excuse for spending it “unwisely” (it’s an un-anchored windfall; if you completely waste it, you’re no worse off than in the _status quo ante_).
That’s quite clever. What was the response of the recipients? I take it that these were typically small presents, so he didn’t need a shoebox to give them in?
When I had a corporate job, one of the minor things the corporation did was to buy lottery tickets once a year for all the employees. And every year I would seek out one of the people involved in organizing this, and hand my ticket back, explaining that I didn't buy lottery tickets for myself and didn't want to participate in one even if it cost me nothing. Gambling looks to me like an addictive form of irrational thinking, and it's an addiction I don't want to expose myself to; for me, lottery tickets had negative utility.
Another reason to not give cash, or overly generic gift cards (Walmart?), is that they're uninteresting. You can either open a gift with immediate use-value (or at least let your imagination run with what you could use it for, something to fixate on), or a card with some cash that you'll have to take to do your own shopping in order to find what you want or need.
Of course, the value of that cash is highly variable. In It's a Wonderful Life, cash was the best possible gift because of a significant cash shortage. Giving a durable good of the same value to George Bailey would have been supremely unhelpful, and he would have gone to jail.
And your daughter is right - cash and gift cards make a lot more sense today due to the ease of modern shopping. If you give me $10 I can find a thousand ways to spend that and have it delivered to my house or maybe even buy it digitally online with immediate response. For most of history, gifts would have been closer to the silver handmade items you give for extraordinary performances - rare and difficult to get. I doubt too many people gave out perfectly ordinary items in 1242AD either, it's just that "ordinary" covers a lot more ground today than it did then.
> The idea that giving a gift shows you were willing to go to the trouble to find one seems even less persuasive. Why not simply send a check equal to the value of the gift you would have found plus the value of the time you would have spent finding it?
Giving gifts, at least among people who don't depend on them as a means of living, serves to demonstrate that the giver is willing and able to know the other person's complex problems, by demonstrating knowledge of their complex preferences. Some problems can't be solved with money, like relationship problems, and what we want from our friends is not a willingness to make a thousand dollar cash transfer (when would we need that? If I ever need money beyond what institutions will lend me, it's going to be too much for me to expect from a friend,) but rather broad and practicable understanding of our lives and the balances we navigate with other friends. I'd rather you show that you can think about me when I am not around to represent myself, than to have another low-interest line of credit up to $100.
If you want it in economic language, it's a test run carried out between friends of their ability to solve the principal-agent problem.
That's getting close to my argument about the gift as a signal of altruism because a suitable gift is evidence of knowledge of the recipient's preferences, knowledge an altruist has reason to acquire.
Altruism is different from representation. A congressman with 90% approval in his own district and 10% outside of it, or a biker who fights for his gal, are good representatives but not altruists. If I find a used book that you really enjoy, I am representing you effectively at the used book store; even if it cost me very little. If I donate $10,000 to an effective charity and later tell someone I don't have anything to give them, I am being an altruist but not a representative. I have think that gifts in our culture have a lot more to do with representation than with altruism.
"Altruist" as I use it, following Becker, doesn't mean someone in favor of good things for other people in general, it means someone in favor of good things for a specific person, in Becker's model someone whose utility function includes as one argument the utility of a different person.
Oh, that makes sense then. In that case I guess my emphasis is on the way selecting a gift well demonstrates the ability to act altruistically in situations where the other person's interest can be hard to discern (like relationship issues), while a fifty dollar bill demonstrates the ability to spare fifty dollars, the former being rarer and more valuable among middle class Americans than the latter. Both demonstrate altruism equally as measured by degree of personal sacrifice which is how you'd guess at the factor in front of your idea of the other person's utility function in the sum that is your own, but the former demonstrates more about how accurate your idea of your friend's utility is.