Chocolate and Gold Coins

Tuesday, May 31, 2005

The Economics of Wine Tasting

This weekend, my family took a little trip to central Virginia to the home of some of our first presidents: Jefferson, Madison, and Monroe. That region is also a wine-producing region and several local wineries offer wine tasting.

Now wine tasting is an interesting game. Some of the better wineries charge for sampling their wine. Lesser ones offer it free. And truly awful ones probably don’t offer tasting at all. The question is: isn’t it risky to offer mediocre wine for free? The answer is: no. You feel obliged to buy something if someone gives you a freebee.

Coincidently, Bryan Caplan at Econlog blogged yesterday about exactly this phenomenon in “Don’t do me any favors:”

What do you do if someone you don't like tries to give you an expensive present? Homo economicus would happily take it: "It's not like I signed a contract!" But most people would at least think twice before accepting the gift.

Why is this? My best guess is that (a) Our natural psychological reaction to a favor is gratitude and a desire to reciprocate, and (b) We are rational enough to foresee our reaction and try to avert it. Broadly construed, refusing a gift is a selfish act, because you know that if you take this payment, you will pay it back, even though you don't have to.

He might have added that offering a gift in the expectation of a sale is a selfish act.

Two years ago, my family visited Napa valley and we went to the famous St. Supery winery. They charge for wine tasting. They are signaling that their wine is so good that, 1. You would pay to taste it, and 2. You would buy a bottle after tasting it even if you were under no obligation to buy.

Most wineries will offer the wine free. They figure that you will not pay to taste their wine because you never heard of their wine. And even if the wine is mediocre, if it isn’t downright awful, you will feel obliged to buy a bottle after sampling the product. The wine tasting game is really the same as the tipping game which I blogged about before. We visited a winery, sampled several wines, and got one bottle.

The interesting thing about wine tasting is that there are two factors in favor of the winery: one is that offering the product free makes one feel obliged to buy, and two, the product tend to impair judgment.

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