Wine Economics Corner
As some of you out there know, I love wine. And, surprisingly, there are enough economists out there who both love wine and statistics enough to do empirical research on wine. This paper by Goldstein et al. is particularly interesting and likely to stir up conflict among wine enthusiasts.
It asks the age old question: are more expensive wines better than less expensive wines?
And there answer is…………………………………
(it’s hard to build up anticipation online!)
That depends! (Just like an economist to answer that way).
For non-wine experts there is actually a slightly negative association between an increase in the price of wine. In other words, for the lay person, more expensive wine is less enjoyable than cheaper wine on average. On the other, hand wine “experts” derive more enjoyment from more expensive wine. How strong are these effects. I’ll let the authors explains:
"How large are these price effects? The coefﬁ cients are of a moderate magnitude, but non-negligible, given that wine prices cover a large range – both in our sample and in the general wine market. Suppose we have two wines, A and B, and Wine A costs ten times more then Wine B in dollar terms. In terms of a 100-point scale (such as that used by Wine Spectator), the OLS estimation of Model 2 predicts that non-experts will assign an overall rating that is four points lower for wine A, whereas experts will assign an overall rating that is seven points higher."
What’s particularly interesting is this effect becomes even stronger if the cheapest and most expensive wines are omitted for the sample and is robust to the inclusion of fixed effects (don’t worry about this last thing if you’re not an economist-it just means the results are even better, I can explain it to anyone curious in detail, but I promise you can just ignore it for today).
So is this the last word on whether cheap wines are better than expensive wines. No for a couple of reasons.
First of all, I see one major flaw in the design of the regressions. They don’t control for the type of wine being tasted. It could be the case for instance that wine enthusiasts prefer more expensive reds while lay people prefer cheaper whites. Anecdotal evidence suggests to me that this very well may be the case.
Furthermore, it could also be the case that in the world of reds that in reality people prefer cheaper merlots to more expensive pinot noirs and the movie Sideways just confused them.
And lastly, it is just one study. It’s impressive in that it involved 6,000 people and each person did 17 tastings so I think the results should definitely be taken seriously. But statistics being what they are, you can never be sure about anything until something has been replicated a few times.
So does this mean I’ll stop drinking my $60 chateauneuf du pape (for occasions only of course) anytime soon (I am far from a wine “expert”) . No, I still love it and that’s not going to change. However, it means you shouldn’t feel bad the next time you order a cheaper bottle of wine rather than a more expensive one. You may even increase everyone’s enjoyment a little bit!