Answer to Question #91061 in Microeconomics for John Manda

Question

Aman is debating what to give his girlfriend for her birthday.“Iknow,”he says to
himself,“I’ll give her cash.After all,I don’t know her tastes as well as she does,
and with cash,she can buy anything she wants.”But when he hands her the
money,she is offended.Convinced he doesn’t really love her,she breaks off the
relationship.What’s the economics behind this story?

Answer 1

The man has some private information to convey to her girlfriend-whether he really loves her. Since identifying a good gift other than money takes time and effort, a unique gift act as the best signal of his love. Moreover, the gift of choice will help the girlfriend satisfy her preference for her boyfriend and strengthen the intimate connection between the two since love is a social desire.