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Gift card present.

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Q: What makes the best last-minute gift: cash, a gift card or something else?

It's that time of year when many of us have a long list of gifts to purchase (yay, holiday season!) and a short list of great gift ideas (ugh, shopping). We always try to be thoughtful and unique in our gift-giving but in some cases, and for some people, you just have to give in. That's when our thought processes turns to a familiar dilemma: gift card or cash? Or maybe you think about re-gifting that unused scarf from your aunt.

I'm about to put an end to your psychological torment.

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Do you want to know the secret to a really great gift? This is a question we can answer with behavioural science. You might think it's something they wouldn't buy for themselves, something they can't afford or a handmade macaroni necklace. It's none of those things.

The ideal gift removes the pain of paying – the negative feeling we often experience whenever we make a purchase. Numerous studies performed by behavioural economists have shown that we often feel pain when we buy something we "want" rather than something we "need," particularly when the former triggers a sensation of guilt. We also get this feeling when the depletion of our resources – our cash – is visible rather than hidden or deferred, as it generally is with a credit card.

Back to the question. Here are two ways you can be a truly great gift giver:

Plan A: Buy something they truly want. If you're at all close with this person, they've probably dropped hints loud and clear. They may have even e-mailed you an Amazon link. Do you think this is a gift-giving cop-out? It's not! Most of us can relate to the pressure of wanting to buy gifts that are thoughtful and creative, but in reality people love to receive things they've explicitly asked for.

In 2011, psychologists Francesca Gino and Francis J. Flynn conducted a series of studies at Stanford University demonstrating that recipients are more appreciative of gifts they requested than those they had not. They also found that gift givers, conversely, believed that unsolicited gifts (that is, something the recipient might like but hasn't asked for) would be seen as more thoughtful and considerate.

The lesson: Buy your friends and family something they've asked for. Not only will it remove entirely the pain of paying for them entirely, they'll get exactly what they want and they will appreciate it.

Plan B: When that fails, go for the gift card. Those who believe nothing beats cold hard cash are wrong. A gift card wins every time. That might seem counterintuitive because cash can be spent anywhere, but paying with cash invokes a high pain of paying.

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For this we can look to a paper published by Drazen Prelec and George Loewenstein at the Sloan School of Management at MIT back in the 1990s. It examined the relationship between the pain of paying, consumption and enjoyment. Their research found that people experience greater enjoyment of a purchase when consumption and payment don't happen at the same time. They also found that people experience greater enjoyment when consumption doesn't call to mind thoughts of payment. (If you've ever been on an all-inclusive vacation you know exactly how good it feels to drink your weight in margaritas without opening your wallet.)

In this case, a non-cash alternative like a gift card at a retailer you know the person likes will eliminate any negative feelings the recipient could possible feel when spending it. An equivalent amount of cash, even though it was a gift, will inevitably trigger some feelings of discomfort when they choose to spend it instead of save it. In other words, they won't enjoy parting with the cash. So, get the gift card.

If you were waiting for an Plan C that gives you permission to re-gift that present from your aunt, you won't find it here. That's not going to make anyone look good. Pair a gift card with a nice note and rest assured the recipient will be plenty pleased. Happy shopping.

Stephanie Bank is a behavioural economist at Evree, a Toronto-based startup that builds tools to make saving as easy as spending.

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