The willingness to pay for wine bullshit

Consumers often can't tell the difference between two similar substitute products. I've blogged previously about bottled water, but people can't even tell the difference between dog food and pâté (ungated earlier version here). In the bottled water research, people couldn't match different bottled waters to their descriptions. That may be because water descriptions are mostly bullshit - after all, this article by Richard Quandt (Princeton University) notes that wine descriptions are mostly bullshit too.

That brings me to this recent article by Kevin Capehart (California State University), published in the Journal of Wine Economics (sorry, I don't see an ungated version online). Capehart looks at the bullshit wine descriptors that were described as bullshit in Quandt's article (descriptors such as 'silky tannins', 'velvety tannins', 'brawny', and a flavour of 'smoked game'). He then uses various methods to estimate consumers' willingness to pay for bullshit. Specifically, Capehart employs three methods:

I start by using a hedonic regression similar to regressions used by previous studies on wine prices and descriptions...

The second method uses the same dataset used for my hedonic regression, but I draw on approaches for matching rich texts... in order to obtain matching estimates of consumers’ MWTP [marginal willingness-to-pay] for select descriptors. My third method is a stated-preference survey in which I directly ask approximately 500 wine consumers about their MWTP for select descriptors.

For the hedonic regression model, Capehart draws on the descriptions in various online wine catalogues, leading to a dataset of over 51,000 wines. Looking at the effect of different descriptors on wine prices, he finds that:

Despite their joint significance, many of the descriptors have effects that are not statistically significantly different from zero at conventional levels. Examples of descriptors with statistically insignificant effects include “silky” and “silky tannins.”...

Some descriptors do have effects that are statistically different from zero. Of the 106 descriptors, 43 have effects that are significantly significant at the 10% level. Yet, some of those statistically significant effects are not substantively significant. For example, the effect of “velvety tannins” is statistically different from zero (p-value = 0.03), but it is arguably small at only 2.5% (se = 1.1%). A 2.5% change is less than a $1 change for any bottle under $40.

So, some descriptors are associated with higher priced wines, and some with lower price wines. However, mostly the effects are small. Unfortunately, overall the hedonic regression model poses more questions than it answers. As Capehart notes:

If those hedonic results are momentarily accepted, there is much to puzzle over. Why would consumers be willing to pay so much more for wine if an expert described it in terms of the smoked game? How much more or less would they be willing to pay if the expert described the game as being prepared differently, such as by roasting, steaming, or boiling? And what if the expert described the game as a specific type of animal such as a pheasant, boar, deer, squirrel, or some elusive or imaginary creature that few if any have tasted? Questions abound.

Capehart then moves onto using a text-matching estimator:

Any matching estimator tries to match subjects who have received a treatment to control subjects who are as similar as possible, except they did not receive the treatment. After matching, the effect of the treatment on an outcome of interest can be estimated by comparing the outcomes of the matched subjects. Here, the “subjects” are wines, the “treatment” is whether a given Quandt descriptor appears in a wine’s description, and the outcome of interest is the wine’s price.

He essentially uses the 'bag-of-words' approach, which really means noting whether each description contains one or more words (that is, the actual context of their use is ignored). This analysis basically compares wines with very similar descriptions, one of which contains the particular descriptor and one of which does not. In this analysis, Capehart finds that the results are:

...generally consistent or not inconsistent with my hedonic estimates.

Ok, so again wine consumers appear to be willing to pay for some descriptors. Why not ask them about it? That's what the final analysis does, based on a stated preference survey of 469 US wine consumers, conducted online. Essentially, each research participant was asked to choose between two wines, with different prices and descriptions. Based on those hypothetical (stated preference) choices, Capehart finds that:

...most consumers have a zero or near-zero MWTP for velvety rather than silky tannins; that would be consistent with “velvety” and “silky” being synonyms and not inconsistent with my hedonic and matching estimates that suggested at most a small price premium for velvety over silky tannins.

Overall, across the three methods, Capehart concludes that (emphasis is his):

One conclusion is that most consumers seem to have little if any MWTP for wines described by most of the Quandt descriptors. My hedonic approach suggested the majority of the descriptors have a price premium of zero or near-zero. My matching and survey estimates were generally consistent or not inconsistent with my hedonic estimates, at least for the select descriptors considered.

The other conclusion is that some consumers have a non-zero MWTP for wines described by some of the Quandt descriptors. The hedonic approach suggested some descriptors have price premiums (or discounts) that are significant in the statistical sense and arguably significant in the substantive sense. My matching approach suggested the same. And my survey approach suggested some expert and novice wine consumers are willing to pay more than nothing for some descriptors.

In other words, most wine consumers are not willing to pay anything for wine bullshit, but some consumers are. If wine descriptors are mostly bullshit (as Quandt claimed), why would any consumers be willing to pay for wines that have those descriptors? That is the question that Capehart doesn't answer. Perhaps those consumers that are willing to pay a positive amount for a particular descriptor, are willing to do so simply because they feel better for knowing that they are consuming something that has been described as having 'velvety tannins' or the flavour of 'smoked game'? We don't know, so more research will be required in order to uncover the answer to the question of why.