Many of my most prized possessions were gifts from others. My mother gave me a beautiful acoustic guitar for my high school graduation that has been with me ever since. A dozen years later when I finished graduate school, my godfather gave me a lovely piece of luggage which I am sure will age much more gracefully than I will.
Even economists, the Scrooges of the social sciences, believe in the power of presents. In a survey of expert economists on the Chicago Business School's IGM panel, only 17 percent agreed that “giving specific presents as holiday gifts is inefficient, because recipients could satisfy their preferences much better with cash.”
Why is it that a well-chosen gift is worth more than its price? How can we choose the right gift?
The most common reason given by members of the panel is that a gift serves not only as a transfer of wealth from the giver to the receiver, but also a signal of how much the giver values their relationship with the receiver. Searching for a gift requires more effort and sacrifice, and knowing what to get shows a better understanding of the giftee and what makes them happy. I can't think of a more important foundation for a relationship between two people.
Durable gifts can also be reminders of a shared bond. Cash isn't a good substitute. To test the power of this theory, Chicago economist Austan Goolsbee suggests: “Instead of proposing to your wife with a diamond ring, offer a gift card of equal value. Efficient – if you don't count your hospital bills.”
There are also gifts that people would enjoy but would never indulge in themselves. A wine or chocolate lover may not buy their most coveted delicacies for themselves, for fear of setting a precedent and succumbing to temptation too frequently. Receiving them as a gift allows enjoyment without the guilt of transgression.
A gift is also an opportunity to introduce someone to a new pleasure. It could be something totally new to them, perhaps a pocket handkerchief for someone who hasn't worn one before, or a reintroduction to a familiar item on different terms – such as a finely crafted umbrella or luxurious socks, surprises that bring beauty to a place where only function was expected.
Reserve your cash gifts for tipping waiters. For your loved ones, give thoughtfully.