Why Gifts are Better than Cash

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.Β 

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,Β only 17 percent agreed that β€œgiving 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: β€œInstead 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.

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