We all know O. Henry’s timeless classic, The Gift of the Magi. It is about a young husband (Jim) and Wife (Della). They were too poor to buy a decent Christmas gift for each other. Finally, Della decides to sell her beautiful hair for 20 dollars and buys a gold watch chain for Jim. When Jim comes home for dinner, Della tells the story and shows the gift, only to find a puzzled Jim and finds out that he sold his watch to buy the combs with jewels as a surprise gift for his beloved’s hair!
What would be a rational analysis of the decisions made by the couple in the story? First, draw the payoff matrix. There are four options: 1) Dell and Jim keep what they have, 2) Dell sells hair, Jim keeps his watch, 3) Dell keeps her hair, Jim sells his watch and 4) they both sell their belongings. The payoffs are
| Della | Della | ||
| Not Sell Hair | Sell Hair | ||
| Jim | Not Sell Watch | D = 0, J = 0 | D = 5, J = 10 |
| Jim | Sell Watch | D = 10, J = 5 | D = -10, J = -10 |
When both decide to have no gifts for Christmas, they maintain the status quo with zero payoffs. One of them selling their belonging to buy a gift that the other person dearly wished for brings happiness to the receiving person (+10) and satisfaction to the giver (+5). Eventually, when they lose their belongings, resulting in no material gain for any of them, they both are on negative payoffs. Their sacrifice was in vain!
The author chose an ending called a coordination failure in the language of game theory. It is an outcome that is out-of-equilibrium. For a short-story writer, this brings drama to his readers and conveys the value of sacrifice. In the eyes of millions of readers, the couple’s payoffs were infinite.
The Gift of Magi by O. Henry
