Business Life: Wine economics
First published in Business Life Magazine, November 2008
I enjoy a glass of red, but I have to admit I am hardly a connoisseur: a friend once handed me a wine guide and invited me to read it prior to the next time I brought round a bottle. But now I have a secret weapon: the Journal of Wine Economics, official publication of the American Association of Wine Economists. These economists do everything economists do – only for wine. They study market share of wine producers, the impact of globalisation on wine, or the functioning of wine auctions.
There are also economists who use “behavioural economics” – that is, a hybrid of economics and psychology – to understand what we value in wine. The conclusions are intoxicating.
One of the interesting discoveries is the impact of price on the perceived quality of wine.
In a blind tasting, it turns out that most of us actually prefer to drink cheaper wine, as long as we don’t know it’s cheap wine. Oenephiles with some professional training do prefer the more expensive wines in a blind tasting, but just barely.
That might suggest that cheap wines are easily better value, but sadly life is not so simple. We usually know all too well what the stuff cost. This matters: the “neuro-economist” Antonio Rangel, with several colleagues, gave subjects wine to drink, after telling them a price tag. Although the wine never varied, the people who were told that it was expensive thought it tasted better; brainscans even revealed that their brains had a different perception of the experience of expensive wine. If only we could drink cheap wine believing that it was expensive…
The President of the American Association of Wine Economists is Orley Ashenfelter. Ashenfelter is a major figure in economics – editor of the prestigious American Economic Review for nearly two decades – but he also published what might be the most controversial analysis in wine economics, using economic forecasting techniques to assess the quality of Bordeaux wines shortly after harvest, using data on rainfall and average temperatures while the grapes were growing. If correct, the forecast would be valuable because young wines bear little or no resemblance to the mature wines that connoisseurs value so highly.
Ashenfelter recently recalled the controversy in the pages of The Economic Journal. “I decided in 1991 to predict that both the 1989 and 1990 vintages in Bordeaux were likely to be outstanding. Ironically, many professional wine writers did not concur with this prediction at the time…”
Ashenfelter’s predictions had the pros spitting blood instead of Bordeaux. And yet, “there is no virtually unanimous agreement that 1989 and 1990 are two of the outstanding vintages of the last 50 years”.
As I say, I don’t know much about wine. But I know some economists who do.