Jim Ross
Frances Woolley is a professor of economics at Carleton University, where she teaches public finance
"I admire people who own expensive homes, cars, and clothes."
"I like a lot of luxury in my life."
"I'd be happier if I could afford to buy more things."
These statements are from a test used by consumer researchers to measure " material values." The more strongly you agree with these statements, the higher you rank on the materialism scale.
Materialistic people and non-materialistic people perceive the world differently. Just how differently was documented in a recent study by economic psychologists Fabian Christandl, Detlef Fetchenhauer, and Sebastian Lotz.
Christandl and co-authors studied something called the "labeling effect." That's a term psychologists and marketers use to describe a widespread phenomenon: people evaluate products on the basis of external cues -- a product label, a server's recommendation, the price -- rather than the intrinsic quality of the product itself.
The researchers carried out a simple study. They went out onto the street, and asked people if they would like to participate in a wine-tasting experiment. Half were told that they were drinking a €3 bottle of wine (the study was carried out in Germany, where a deeply discounted bottle can be purchased for €3). Half were told that they were drinking a bottle that cost €20 -– the price of a premium vintage. In fact all participants were drinking the same wine -- an ordinary table wine, purchased in 5 litre tetra-paks from a wine dealer.
The participants were then asked to taste the wine, and rank it on a scale of 1 to 100.
People with a low score on the materialism scale gave the wine a ranking of about 60/100. The score awarded was about the same whether the wine had a €3 or €20 price tag.
But more materialistic people perceived the "expensive" and "cheap" wines differently. They gave a significantly lower quality rating to the wine when they thought they were drinking from €3 bottle.
At one level, the findings are not surprising. If you're a person who likes luxury and who admires people who own expensive things, then you expect expensive wine to taste good and cheap wine to taste bad. There is a basic human tendency called "confirmation bias". We interpret the world in a way that fits with our pre-existing views. That means, for more materialistic people, giving a low quality to score to €3 wine.
Can real-world firms make profits by taking mediocre wine, putting it in a fancy, high-priced bottle, and selling it to people who are tricked by the price tag into believing that it really tastes good? The answer depends upon how well informed consumers are.
Yes, Christandl and co-authors' results suggest that it is possible to fool consumers: under certain circumstances, prices do influence a consumer's taste experience.
Yet a person buying a bottle of wine doesn't have to rely solely on a wine's label to judge its quality. Reputation matters -- the reputation of the area, the grapes, the vineyard -- and a winery that sells overpriced wine risks losing its reputation. Consequently, putting expensive labels on cheap wine is a dangerous strategy for a winery aiming at long-run growth.
But do wineries do it anyways? Honestly, I'm not enough of a wine connoisseur to know.
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