An economist’s Christmas present

With Christmas day drawing closer I have no doubt that many of you are still searching desperately for those perfect presents for your friends and loved ones.  Luckily I have worked out the perfect gift for you to give –  cash.  Let me explain why this seemingly thoughtless gift is actually the best thing money can buy.

In the world there exists an immeasurable number of potential presents.  The person you are aiming to give a present to values these gifts differently, implying that they prefer some things to others.

Although your keen eye for fashion and unquestionable taste implies that you will get them something they like there is still some, significant, chance that you will not choose the present that they desire the most.

A few of the reasons for this are

  • You cannot observe the pains and pleasures they experience from a certain gift; you can only make an educated guess based on your imperfect knowledge of them
  • Often you do not know what they already own, implying that there is a non-zero chance you will buy something that they already have
  • It is often impractical to co-ordinate gift shopping with other people, implying that there is a non-zero chance someone else will buy your loved one the same gift.

This is where the beauty of cash as a gift appears.  By providing your loved one with cash, you are giving them the means to purchase the thing they do value the most (for the same initial cash outlay) irrespective of what they own and what other people have purchased for them.

By giving someone cash you are saying "I want you to have the best Christmas present possible, and I am providing you the means with which to do this".  Isn't this a beautiful sentiment? Truly if someone said that to me when they passed me a wad of cash I would feel touched.

Now I realise that some people without much exposure to the dark arts of economics may feel that this misses the point.  Gift should be from the heart, it is the thought that counts, and the effort offending the present is part of the gift; these are all common sentiments expressed when people walk around buying each other socks and Celine Dion CDs.

And it is true, by incurring the search cost of finding a gift you are adding to the value of the present. Furthermore, by picking something that a person likes (even if it is not their favourite thing) you are signalling to the individual that you know something about them a signal that has value.  Finally, by making a gift for someone you are giving them something unique, something that reminds them of you.

However, none of these issues change the fact that giving them cash is still the best available present.  If the person you are giving a gift to values, the fact that you 'searched' you could just give them the cash equivalent of the cost to you for searching for the gift. There are other, cheaper, ways of signalling that you know what the person likes such as talking with your loved one.  And finally, if you gave the person cash and they paid it back to you to make them something, then you would know that knitting them that jersey was the best solution otherwise cash still trumps the day.

Although I sense that you are now amiable to the idea of giving cash to your loved ones for Christmas, I do understand that the person receiving the gift may not recognise that you are doing it with the best intentions.  After all, it is hard for someone to tell if you are giving them cash because you forgot to get them a present, or because you think it is genuinely the best gift.

Luckily I have a solution.

Pick up a few extra copies of the Dominion Post, cut out this column, and attach it to the money you are giving to your loved ones.  Once they have finished reading the justification for why you are giving them cash, and recognised that you did put thought into the gift, they will undoubtedly accept the cash as one of the most thoughtful presents they have ever received.

The regular authors of this column wish our readers a merry Christmas and prosperous New Year.  From Adolf Stroombergen, Andrew Whiteford, David Grimmond, Gareth Kiernan, Geoff Simmons, John Carran, Matt Nolan, and Nigel Pinkerton.

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