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The Value of a Price Tag

by Elaine Schwartz    •    Jan 8, 2011    •    225 Views

Asking, “Do More Expensive Wines Taste Better?” a group of researchers decided to find out. They described the results of their study in a working paper for the American Association of Wine Economists (AAWE).

The researchers introduced their paper by citing studies that concluded people expect a “positive correlation between price and quality.” They then explained that their experiment involved “blind tasting” of wines whose prices ranged from $1.65 to $150. The results?  They differed between the non-experts and experts. For the non-experts, drinking unidentified wines, the less expensive wine was more frequently chosen as better. For experts, the opposite was true.

(While other studies from the AAWE include a paper on wine investing and carbon and the global wine trade, one title particularly captivated me: “Can People Distinguish Pate from Dog Food?“)

I recommend the Freakonomics podcast that described the wine tasting experiment.

The Economic Lesson

As economists, how might we describe the connection between a price tag and enjoyment? We can refer to utility. If a higher price increases enjoyment then we can conclude that it also increases utility.

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