Picture this: Valentine’s Day just passed by — red roses, expensive gifts, chocolates, teddy bears and what not. A young man was pondering what to give his pretty girlfriend for this special day. He couldn’t decide between an elephantine teddy bear or a big bunch of dew-kissed crimson roses. Ultimately, he gave up. “You know what,” he mutters to himself, “I’ll give her cash. After all, I don’t know her tastes and preferences as well as she does, and with cash, she can buy anything she wants.” That made for some crisp, lucid and succinct reasoning. The d-day arrived, but when he handed her the money, she became livid and furious. She was convinced that he doesn’t really love her, she decided to breaks off the relationship and left the cafe’ even before the date started. That was that.
Cut to chase, I was left wondering about the economics behind this story. We as individuals would be better off buying whatever they want with money instead of getting gifts that our folks and friends decide to buy.
Also, as far as the givers are concerned, it’s much easier to give money than buy a gift. The fundamental question that then rises is, if both the givers and receivers are better off with money than a gift, why do so many people buy gifts?
In some ways, gift giving is a bizarre tradition. As the man in our story suggests, people typically know their own choices, tastes and preferences better than others do, so we might expect everyone to prefer cash to in-kind transfers. If your employer substituted select merchandise of his choice instead of your pay-cheque, you would likely object to the means of payment. But your reaction is poles apart when someone who (you would hope) loves you does the same thing. One explanation of gift giving is that it reflects asymmetric information and market signalling. The young man in the aforementioned story has private information that the girlfriend would like to know: ‘Does he really love her’? Choosing an expensive, exquisite and extravagant present for her is a ‘signal’ of his love. Surely, the whole act of taking time (and moolah!) out to purchase a gift, rather than giving cash, has the right characteristics to be a signal. It is costly, it takes time, and its cost depends on private information (how much he loves her). The logic is quite simple: If he really loves her, choosing a gift is easy because he is thinking about her all the time. If he doesn’t love her, finding the right gift is more difficult. Thus, giving a gift that suits the girlfriend is one way for him to convey the private information of his love for her. Giving cash shows that he isn’t even bothering to try.
The signalling theory of gift giving is also consistent with an alternate observation: People care most about the tradition when the power of love and affection is most in question. Thus, giving cash to a girlfriend or boyfriend is usually a bad move is a fair conclusion. But when we get money from our parents or grandparents for our birthdays, we are less often offended. The parents’ love is less likely to be in doubt, so we don’t interpret the cash gift as a signal of lack of affection.
Cut to chase, this is for all young boys and girls, next Valentine’s be careful of what you choose for your loved one. Or else watch your date go by even before it starts!
filmbuff100@gmail.com