Ethics of Gift Giving

The Economic Theory of Gift Giving states that, unless you give cash, you're being inefficient. There's no way that you can spend $X on someone better than they could spend it themselves. Sometimes people suggest that you can get away with giving people stuff they need anyways, like batteries or stamps (especially stamps - they come in designs that you can tailor to the recipient!) but, still, you don't know what percentage of the person's annual bundle of goods is going to be devoted to stamps or batteries, so you might easily overbuy. Plus, time-value of money, etc., etc.

Of course, this is obviously the bunk. If you can't see why, try giving your significant other a bunch of batteries for Christmas. Especially if you're a dude.*

So, once we've established that gift giving is, and should be, inefficient, what does that tell us about gift-giving? Well, my theory has long been that, ideally, a gift should have a very high value-to-utility ratio.

And what do I mean by value-to-utility ratio? Well, let's suppose someone really likes chess. If they don't have a lot of disposable income, they might buy a set of cheap plastic chess pieces and a foldable vinyl chess mat. Its not particularly nice, but it gets the job done. High utility, low value.

If you were to shop for a gift for this person, perhaps you might buy them a very nice ornate chess set. They would certainly appreciate it. However, the new chess set would have no additional value over the vinyl-mat-and-plastic-piece set they already have. Both sets get the job of playing chess done quite fine. Thus, the utility remains the same - and, in fact, the marginal utility is almost zero. However, the new chess set has very high value - especially for a chess enthusiast. Thus, the high value-to-utility ratio.

So, the take home? If you're going to spend $X on someone for a gift, you should try to put as much of that $X into getting something *nice* rather than something *useful*. When you give a gift, get something that someone would love, but would never get themself. If you don't, then you're doing the one thing you should never do when giving someone a gift: being efficient.


* - Given that I have zero two readers, this part of the post is surplussage, but whatever.