Author: Fides Tolentino Linga

The holidays are almost here! There are many things I love about the holidays, but one of them surely is gift-giving. Not everyone feels the same way though. So let’s try to simplify gift giving decisions with some help from game theory. How can we apply what we learned about game theory to gift-giving?

https://www.tumblr.com/allmoviegifs/53728419970

When we buy a gift for someone, it has a cost to us (effort, monetary, or both). And when we receive a gift, we get some enjoyment out of it. This sounds like a game! Let’s consider a pair of friends who are deciding whether or not it’s worth it to get each other a gift. Each friend has two strategies — to buy a gift for their friend, or not.Each friend buys a gift with a cost C, and receives a gift with enjoyment E. Of course, they could also not get a gift for their friend (at no cost), and possibly not receive a gift from their friend (resulting in no enjoyment). We can draw a payoff matrix for this like so.

		Friend 2
		Give Gift	Not Give Gift
Friend 1	Give Gift	E1 – C1, E2 – C2	-C1, E2
	Not Give Gift	E1, -C2	0, 0

Now, let’s assume that E > C (because both friends know what the other likes and they bought the gifts at a discount). You would think that the optimal strategy would be to always want to get each other a gift, but according to this payoff matrix… each friend would be better off with not buying a gift for their friend! Of course, surely you see something wrong about our conclusion. One thing to notice is that not giving a gift can either give us enjoyment (if the other person gives us a gift) or nothing (if the other person doesn’t get us a gift). 

However, if we consider this as an iterated game, our strategy has to be different. Because our friend would consider what we did in the previous year when deciding what to do this year. It turns out, that for long-term games, choosing the generous strategy is better than the greedy one outright. This is because gift-givers usually copy whatever their recipient’s response from the previous game. So If I got my friend a gift last year, but they did not give me one… I would not get them one this year! And if I did not get my friend a gift this year, but they got me one, I would try to get them a gift next year (or even immediately). Can you think of other iterated games where we can expect our friend to play our previous strategy (rock paper scissors!)

The optimal strategies for this payoff matrix only work if you spend one Christmas with each other, and never see each other again. It wouldn’t work for someone you would spend multiple holidays with, for years to come. One more thing — if you’re like me, getting a gift for someone in itself is enough to make you happy (I personally enjoy buying gifts for others than receiving one). So it doesn’t matter as much for me if I don’t get something that I like.

If we then consider the joy of giving into our equation, it turns out that buying a gift is always the optimal strategy.

		Friend 2
		Give Gift	Not Give Gift
Friend 1	Give Gift	J1 + E1 – C1, J2 + E2 – C2	J1 – C1, E2
	Not Give Gift	E1, J2 -C2	0, 0

So there you have it! Our payoff matrix is a bit more complicated than usual because we have three variables…

• E: the enjoyment you get from receiving a gift.
• C: the cost you’ve incurred from buying a gift.
• J: the joy you get from giving.

How they compare to one another is totally up to you. In general, if you enjoy gifting (just for the sake of it), then you should probably keep giving. But I know it’s not for everyone! Either way, there are still so many great things about the holidays. Friends, family, and food (I’m sure you can apply game theory to help with many of your holiday decisions)!

Links:

http://theconversation.com/how-to-apply-game-theory-to-buying-your-christmas-presents-52233

https://tedium.co/2018/12/20/game-theory-gift-giving/

Nowadays, a lot of consumers use Instagram as a source of style inspiration. This has been a wonderful thing for brand marketers — instead of worrying about the logistics of creating a marketing campaign, hiring models, creating sets, and preparing shoots — all of that work can be delegated to social media influencers. Now comes the question — as a brand, how should we choose the right influencer for our marketing campaign? How do we ensure that we get the engagement that we want? Should we choose macro-influencers — those with a large following, or perhaps those that are lesser-known? What is the most important factor that determines how effective an influencer is when engaging an audience? Homophily.

One study aimed to find out the reasons for which different followers liked certain influencers. Do people follow influencers because they are attractive? Well, only somewhat. Attractive posts catch the eye. However, it was not the main reason. When asked about why they followed their favourite influencer, many participants said that the influencer led a lifestyle that they wanted for themselves, or they shared similar interests with them. The influencer has to be relatable. In this way, Instagram acts as a mirror for followers. Influencers are often living the life that their followers want. One of the participants, Martha, said that both of her parents were doctors and wanted her to pursue medical school instead of fashion-related subjects. One of Martha’s favourite influencers is Eva Chen. She similarly left medical school to work for a fashion magazine. Perhaps Martha felt that Eva would understand her circumstances, and is now someone she aspires to be. Birds of a feather indeed flock together. On Instagram, the influencer model follows the concept of homophily. Followers prefer to like influencers that they share common interests with. Not only will he/she be able to see more content that they like — but through the influencer, he/she is exposed to that influencer’s follower-base.

If you thought that choosing the macro-influencer (with more followers) over the micro-influencer would yield more engagement, think again! One study also found there was trust for micro-influencers as compared to macro-influencers. Homophily explains this as well. When an influencer has a large following, they usually have to cater to a larger range of interests held by their followers. They may be viewed more like a celebrity to be admired from afar —  which decreases the influencer’s similarity. On the other hand, a micro-influencer might have a following that shares similar interests with each other. Pleasing “everybody” is not an issue. 

The main takeaway is that homophily (not necessarily popularity!) is what drives engagement and credibility on Instagram. One may think that someone would be more likely to show affinity with a more popular influencer. But instead, it is homophily —  how similar a follower perceives the influencer is to them.

Links

https://essay.utwente.nl/72306/

http://hb.diva-portal.org/smash/record.jsf?pid=diva2%3A1232481&dswid=3681