Every day, millions of shoppers hit the stores in 

full force—both online and on foot—searching 

frantically for the perfect gift. Last year, Americans 

spent over $30 billion at retail stores in the month of 

December alone. Aside from purchasing holiday 

gifts, most people regularly buy presents for other 

occasions throughout the year, including weddings, 

birthdays, anniversaries, graduations, and baby 

showers. This frequent experience of gift-giving can 

engender ambivalent feelings in gift-givers. Many 

relish the opportunity to buy presents 

because gift-giving offers a powerful means to build stronger 

bonds with one’s closest peers. At the same time, 

many dread the thought of buying gifts; they worry 

that their purchases will disappoint rather than 

delight the intended recipients.

Anthropologists describe gift-giving as a positive 

social process, serving various political, religious, and 

psychological functions. Economists, however, offer 

a less favorable view. According to Waldfogel (1993), 

gift-giving represents an objective waste of resources. 

People buy gifts that recipients would not choose to 

buy on their own, or at least not spend as much 

money to purchase (a phenomenon referred to as 

“the deadweight loss of Christmas”). To wait, givers 

are likely to spend $100 to purchase a gift that 

receivers would spend only $80 buy themselves. 

This “deadweight loss” suggest that gift-giver are 

not very good at predicting what gifts others will 

appreciate. That in itself not surprising to social 

psychologists. Research has found that people often 

struggle to take account of others’ perspectives—

their insights are subject to egocentrism, social 

projection, and multiple attribution errors.

What is surprising is that gift-givers have 

considerable experience acting as both gift-givers and 

gift-recipients, but nevertheless tend to overspend 

each time they set out to purchase a meaningful gift. 

In the present research, we suppose a unique 

psychological explanation for this overspending 

problem—i.e., that gift-givers equate how much they 

spend with how much recipients will appreciate the 

gift (the more expensive the gift, the stronger a 

gift-recipient’s feelings of appreciation). Although a 

link between gift price and feelings of appreciation 

might seem intuitive to gift-givers, such an 

assumption may be unfounded. Indeed, we propose 

that gift-recipients will be less inclined to base their 

feelings of appreciation on the magnitude of a gift 

than givers assume.

Why do gift-givers assume that gift price is closely 

linked to gift-recipients’ feelings of appreciation? 

Perhaps givers believe that bigger (i.e., more 

expensive) gifts convey stronger signals of 

thoughtfulness and consideration. According to 

Camerer (1988) and others, gift-giving represents a 

symbolic ritual, whereby gift-givers attempt to signal 

their positive attitudes toward the intended recipient 

and their willingness to invest resources in a future 

relationship. In this sense, gift-givers may be 

motivated to spend more money on a gift in order to 

send a “stronger signal” to their intended recipient. 

As for gift-recipients, they may not construe smaller 

and larger gifts as representing smaller and larger 

signals of thoughtfulness and consideration.

The notion of gift-givers and gift-recipients being 

unable to account for the other party’s perspective 

seems puzzling because people slip in and out of 

these roles every day, and, in some cases, multiple 

times in the course of the same day. Yet, despite the 

extensive experience that people have as both givers 

and receivers, they often struggle to transfer 

information gained from one role (e.g., as a giver) 

and apply it in another, complementary role (e.g., as 

a receiver). In theoretical terms, people fail to utilize 

information about their own preferences and 

experiences in order to produce more efficient 

outcomes in their exchange relations. In practical 

terms, people spend hundreds of dollars each year on 

gifts, but somehow never learn to calibrate their gift 

expenditures according to personal insight.