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Valentine’s Day is here and many must be thinking about what to buy for their Valentines!
Well, if we apply Economics here then it says that don’t buy anything! Yes, that’s the best option. Confused? Let’s find out how.

So, we are applying the principle of ‘Game theory’ here.
What is game theory?
Under Game theory, we analyze different situations where the actions of one person critically affect the other.

What are the possible situations in our case?

  1. Both guy and girl get gifts.
  2. Guy gets gift, girl doesn’t.
  3. Girl gets gift, guy doesn’t.
  4. Nobody buys gifts.

Let’s put the outcomes in a table to understand better.

Game theory

Let’s see what both of them must be thinking:

Guy:

  • If I don’t get a gift and she does then I am dead- Option ruled out.
  • If I get a gift, and she doesn’t then I am the good one here- Option in consideration.
  • If we both get gifts, best situation- Option in consideration.
  • If we both don’t get gifts, again best situation but I don’t know if she is getting me a gift or not- Too much risk, Option ruled out.

So, the guy is definitely going to buy a gift. Similar situation goes for the girl as well.

They both would be getting gifts. Ofcourse, this will definitely lead to an uplift in their utility levels but it will come at a huge cost. While, if they would have got nothing for each other then the utility levels would still have risen (because the occasion is about spending time with the one you admire) without involving any kind of costs. This option is not being considered by them because they are taking decisions individually.

The other two cases where one is getting a gift while the other is not can lead to a fall in satisfaction level of any one. So, it is not a desirable situation.

Hence, we come to a conclusion that the situation where nobody buys gift for each other is the most desirable yet the most ignored situation (because there is just too much pressure to conform to the traditions).

I just came across this interesting article, do check it out: 14 ways in which an Economist says I Love You.

 

PS: I’ll be writing my next two articles about budget, since the budget day is very close. So, keep following the blog 🙂

 

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