Signalling and Gifts

by F.

Someone asked me what I was getting my wife for Christmas and I drew a blank. What was I getting her? Then I remembered: we don’t give each other gifts, so I wasn’t getting her anything at Christmas (nor was she getting me anything). I could see my listener was shocked.

One interpretation—probably the one most people have—when they hear we don’t exchange gifts is that our marriage is sour, we are grumpy melancholics, and we live a joyless life. But there is another interpretation which I think is more accurate: there is no reason for us to signal to each other with gifts at Christmas.

As Greg Mankiw points out in his textbook, Principles of Economics, “[o]ne interpretation of gift giving is that it reflects asymmetric information and signaling.” Take the story about me and my wife recounted above. According to signalling theory,

The man in our story has private information that the [wife] would like to know: Does he really love her? Choosing a good gift for her is a signal of his love. Certainly, the act of picking out 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).

If he really loves her, choosing a good 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 [wife] 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.

So the alternative interpretation of our gift giving practice is that there is no information asymmetry. We both love each other, and we are both confident that the other loves us back. Partly this flows from having a “no bullshit” policy in our house. Party it’s because we have been together a long time and are a good match, so we trust each other.

Do we give gifts? Yes. But at random times so they are unexpected. These gifts are usually small, but a small unexpected gift provides a lot more utility than a large, expected gift.

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