The economic irrationality of gifts

Ross Gittins writes:

Conventional economics teaches that gift giving is irrational. The satisfaction or “utility” a person derives from consumption is determined by their personal preferences. But no one understands your preferences as well as you do.

So when I give up $50 worth of utility to buy a present for you, the chances are high that you’ll value it at less than $50. If so, there’s been a mutual loss of utility. The transaction has been inefficient and “welfare reducing”, thus making it irrational. As an economist would put it, “unless a gift that costs the giver p dollars exactly matches the way in which the recipient would have spent the p dollars, the gift is suboptimal”.

Several problems with the reasoning here occurred to me – some, but not all, of which are addressed in the ramainder of the article. I don’t think conventional economics can give a complete account of human rationality.