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The Thought That Counts: Towards a Rational Theory of Gift-Giving

By Lydia Yao

From an economic perspective, the practice of gift-giving in social relationships makes little sense due to the inefficiencies that arise from commonly mismatched gifts and preferences. This paper addresses the frequency of non-monetary gifts compared to more efficient cash transfers. While there is a vast literature concentrated on this cultural phenomenon, we examine a model based on the idea that the sentimental value of a gift can be measured in terms of the time and energy the donor spent to select a desirable gift for the recipient. We demonstrate that under a variety of circumstances, individuals choose to give non-monetary gifts over cash in order to signal to the recipient that they exerted this effort.

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Advisor: Huseyin Yildirim

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