Phew. Somehow, I survived the uncertainty and anxiety of what economists like me often regard as an inefficient tradition: spending hours looking for the right holiday gifts. Fortunately, this year’s trials and tribulations provided me with a few more anxiety-reducing steps for the next set of birthdays, anniversaries and holidays.
This time, it was even more clear that most of the people I give gifts to do not buy into the neoclassical economists’ view that cash dominates gift selection. After all, a straight-out cash present allows them to buy not just what I would have given them, but also something they may prefer more.
The recipients appreciate the asymmetric information argument: that they have a lot better information than I do about what they would want to receive. But, whether they realize it or not, they implicitly adhere to a type of behavioral economics view: What interests them is the signal associated with my gifts, particularly the extent to which I have spent time thinking about, compiling and personalizing them.
One gift with the most impact is one that is carefully selected to incorporate strong personal touches. Among these, I noticed that a particularly big hit this time was a lovely photo album that compiled memories of a fun year. Another winner, also for people who are really hard to shop for and who are of a “certain age,” is an elegantly designed his and hers fountain pen set.
Jewelry and travel fit in this category, but in the (much) higher risk/higher return segment. The goal is to get your loved ones items that they really want but hesitate to get it for themselves. To make this work, you need a lot of information; and you should start gathering intelligence well before the holidays.
Avoid fancy shoes, even if your recipients really need them. While you may be completely confident about the style (a big assumption), getting the right size is very hard. The last thing you want is to be responsible for sending your recipient back to overcrowded stores after the holidays for an exchange.
Professional investors should approach gift-giving in same way they think of portfolio construction. Some diversification can prove both risk-mitigating and return-enhancing. In this regard, a well-constructed barbell approach can be a lot better than simply multiplying the “average gift.” In particular, consider a combination of a really nice present and a series of small and, yes, silly ones.
The holistic nature of the experience is also important. Specifically, how you give your gifts is an important complement to what you give.
For example, a handwritten note has far more meaning than those impersonal from/to stickers, no matter how fancy they are. Similarly, a well-wrapped gift is better than gift bags (and if, like me, you worry about your wrapping skills, use paper with those helpful grids on the flip side). And, when it comes to multiple gifts, sequence them, keeping the best one for the end; and don’t hesitate to have some of the silly ones, maybe even labelled as coming from the pets.
With these tips and the associated learning process, my future gift-giving should be much less fraught with anxiety. That is good news. Unfortunately, the improvement would be a relative one: In absolute terms, the gift-giving aspect of the holidays will remain nerve-wracking.
Happy New Year to all. Thank you for reading my Bloomberg View columns in 2016. May 2017 bring you and your families lots of happiness, health and success.