This paper studies the process of making gift choices in gift-giving and how uncertainty in the receiver’s preference plays a role in preference formation and the price sensitivity of gift-giving. When choosing a gift, the giver usually considers both the giver’s preference and the receiver’s preference because she does not have full knowledge about the receiver's preference. Uncertainty influences the weights that the gift giver puts on the two sources of information. In gift-giving, price not only is the cost that the gift giver has to pay, but also has a positive value as a signal of the care the gift giver has for the receiver. Uncertainty in the receiver’s preference may make the giver relies more on the price’s positive signaling role. I conducted a two-step choice-based c...[ Read more ]

This paper studies the process of making gift choices in gift-giving and how uncertainty in the receiver’s preference plays a role in preference formation and the price sensitivity of gift-giving. When choosing a gift, the giver usually considers both the giver’s preference and the receiver’s preference because she does not have full knowledge about the receiver's preference. Uncertainty influences the weights that the gift giver puts on the two sources of information. In gift-giving, price not only is the cost that the gift giver has to pay, but also has a positive value as a signal of the care the gift giver has for the receiver. Uncertainty in the receiver’s preference may make the giver relies more on the price’s positive signaling role. I conducted a two-step choice-based conjoint experiment and tested the hypotheses. The gift giver's price sensitivity decreases with uncertainty associated with the receiver's preference. The data show evidence of preference updating in gift-giving. The importance of the giver’s preference in determining gift-giving choice increases with uncertainty in receiver’s preference, while the importance of the receiver’s preference decreases with uncertainty. The result has implications in the gift industry where the practice of providing the receiver's wish list or purchase history to the giver may backfire and reduce the profits earned by the firm.