Gifts as Economic Signals and Social Symbols

Gift-giving has often puzzled economists, especially because efficient grifts-like cash or giving exactly what a person asks for-seem crass or inappropriate. It is shown in a formal game-theoretic model that gifts serve as "signals" of a person's intentions about future investment in a relationship, and inefficient gifts can be beter signals. Other explanations for the inefficiency of gift giving are advanced, and some stylized facts about gift-giving practices are described (many of which are consistent with the signaling view of gifts).