The Economics of Wine (Orley Ashenfelter, Princeton)
-
0:00 - 0:03- [Orley] I got involved in it,
interestingly enough -
0:03 - 0:06because I couldn't really afford
the wines that I wanted to buy, -
0:06 - 0:09so I was trying to figure an angle,
a quantitative angle -
0:09 - 0:11that would let me do something,
-
0:11 - 0:13buy some things
that I couldn't normally afford. -
0:14 - 0:16♪ [music] ♪
-
0:23 - 0:25- [Reporter] There's some
controversy fermenting -
0:25 - 0:27within the wine community.
-
0:27 - 0:30At its center is an economist
who claims he can analyze -
0:30 - 0:33fine wines without ever
savoring a drop. -
0:33 - 0:35- [Interviewer] Why did you even
get involved in this? -
0:35 - 0:37I mean you're an economist.
-
0:37 - 0:40- Wine is what people call
an experience good. -
0:40 - 0:43You go to the store,
and you look at all these bottles, -
0:43 - 0:45and you don't know what
it's going to taste like. -
0:45 - 0:48You don't know what it's like
until you open it. -
0:48 - 0:51Then it's too late
if you made a mistake. -
0:51 - 0:53So even though it's incredibly
difficult for people -
0:53 - 0:55to tell wines apart,
-
0:55 - 0:57it's much more difficult
than people realize. -
0:57 - 0:59There are nevertheless
price differences -
0:59 - 1:03that clearly are in part justified
by the quality differences. -
1:03 - 1:07I was trying to figure out how
to learn about quality differences -
1:08 - 1:12and to do that at a point where
prices really hadn't fully adjusted -
1:12 - 1:14to the observed quality
of the wines. -
1:14 - 1:16♪ [music] ♪
-
1:18 - 1:21- [Reporter] They spend any more
than 20 bucks for a bottle, -
1:21 - 1:2530, 40, 50 -- what's the difference
and is it really worth -
1:25 - 1:27what you're getting inside --
how do you know? -
1:27 - 1:29- What's in the bottle is the key,
-
1:29 - 1:31and what's in the bottle
really depends on -
1:31 - 1:32what kind of grapes you have.
-
1:32 - 1:36I learned that you could predict
what the ultimate quality -
1:36 - 1:38of the wine will be
from the weather -
1:38 - 1:40that created the vintage itself.
-
1:40 - 1:42A vintage is all the wines
that are produced -
1:42 - 1:44from a particular growing season.
-
1:44 - 1:47You like to have a dry end
of growing season, -
1:47 - 1:49and then you need to have
a growing season to be warm enough -
1:49 - 1:51so that you can get
the grapes right. -
1:51 - 1:52In places where you don't irrigate,
-
1:52 - 1:54it's nice to have a lot
of rain in the winter. -
1:54 - 1:57So we can explain quite
a lot on the prices of the wines -
1:57 - 2:00after they've become mature,
when they're drinkable. -
2:00 - 2:02Bordeaux wines, in particular,
are not so interesting -
2:02 - 2:03when they're really young.
-
2:03 - 2:06They start to become interesting
when they're about ten years old. -
2:06 - 2:08People collect them,
fancy restaurants have them. -
2:08 - 2:11You always buy old wines, you can
go to the auctions and buy them. -
2:11 - 2:14Here I could predict the prices
of the older wines -
2:14 - 2:15using the weather.
-
2:21 - 2:25The thing of it is it made such
a fantastic example in econometrics -
2:25 - 2:28because there is no question
about causality. -
2:28 - 2:31There's no question that
the weather must affect the prices. -
2:31 - 2:33The prices certainly
didn't change the weather. -
2:33 - 2:37So it's one of those examples
where regression analysis -
2:37 - 2:41is totally justified
and actually quite successful. -
2:41 - 2:43Now here's where
the anomaly comes in. -
2:43 - 2:46The vintages, when
they come on the market -- -
2:46 - 2:48the farmers have
the same costs every year, -
2:48 - 2:50so they would like
to get the same price -
2:50 - 2:52for the grapes every year.
-
2:52 - 2:54If the vintages
really differ in quality, -
2:54 - 2:56it doesn't make sense that
that should be true. -
2:56 - 2:58So what they do is
they have a very grand scheme -
2:58 - 3:01for keeping the prices stable
when they're young. -
3:01 - 3:03What that means is
if you're willing to keep -
3:03 - 3:06the wines for ten years,
and if you know what the weather was -
3:06 - 3:09when they created the vintage,
you can buy the ones -
3:09 - 3:12that are underpriced
as opposed to the ones -
3:12 - 3:14that have to be overpriced
to make this average come out. -
3:15 - 3:16♪ [music] ♪
-
3:18 - 3:21Once I know what it is
about the weather -
3:21 - 3:24that makes wines made
from a certain kind of grape good, -
3:24 - 3:27then I can ask myself, well,
there are probably many places -
3:27 - 3:31where these grapes are not planted,
what would be a good place? -
3:31 - 3:34And the answer to that question is,
well, one that has the weather -
3:34 - 3:37that matches what
a good vintage would look like. -
3:37 - 3:40Let's say we're talking
about the Cabernet type of grapes -
3:40 - 3:41that are grown in Bordeaux.
-
3:41 - 3:45South Jersey has temperatures
just like in Bordeaux. -
3:45 - 3:47I planted grapes in New Jersey.
-
3:47 - 3:49It was kind of a shocking idea.
-
3:49 - 3:51We do have vintage variability
from year to year -- -
3:51 - 3:53we have a little bit
more rain than they do. -
3:53 - 3:55But this year we had
a fantastic vintage. -
3:55 - 3:57It was my first crop
that I had 35,000 pounds -
3:57 - 4:00of incredibly good,
beautiful red grapes -
4:00 - 4:02that are going to make
some really good wine. -
4:06 - 4:09This has now become
an actual subject, -
4:09 - 4:10the economics of wine.
-
4:10 - 4:11There's a thing called
-
4:11 - 4:13the American Association
of Wine Economists -- -
4:13 - 4:15has meetings every year.
-
4:15 - 4:20It's really an attempt to focus
on a very special area -
4:20 - 4:22so that you can think
about bigger problems. -
4:22 - 4:25Basically, once you get started
on something like that, -
4:25 - 4:28the number of uses for it
becomes phenomenal. -
4:29 - 4:31- [Narrator] Want to see more
Economists in the Wild? -
4:31 - 4:33Check out our playlist.
-
4:33 - 4:34Are you a teacher?
-
4:34 - 4:37Here's some related material
for your classroom. -
4:38 - 4:41♪ [music] ♪
- Title:
- The Economics of Wine (Orley Ashenfelter, Princeton)
- Description:
-
What does an economist know about wine? Given that many wines need years to mature, how can one predict which ones will be great or not?
Princeton’s Orley Ashenfelter explains how he used economic principles and regression analysis to predict wine quality (and score great deals!). His research helped spawn an entire field dedicated to the economics of wine.
This video is based on the following paper:
Predicting the Quality and Prices of Bordeaux Wines By Orley Ashenfelter
https://www.researchgate.net/publication/4891174_Predicting_the_Quality_and_Prices_of_Bordeaux_WineMore of Orley Ashenfelter’s work: https://irs.princeton.edu/people/orley-c-ashenfelter
Orley Ashenfelter’s vineyard: https://cedarrosevineyards.com/
Want to see more Economists in the Wild? Check out our series: https://mru.io/economists-wild-67905
***INSTRUCTOR RESOURCES***
Here’s a free assignment to help connect this video to your classroom: https://mru.io/e20a9
Regression analysis assignment: https://mru.io/408e7
More professor resources: https://mru.io/professor-resources-dd8ae
High school teacher resources: https://mru.io/high-school-resources-bd684
EconInbox: https://mru.io/econinbox-72172 - Video Language:
- English
- Team:
- Marginal Revolution University
- Project:
- Economists in the Wild
- Duration:
- 04:47
Theresa Ranft edited English subtitles for The Economics of Wine (Orley Ashenfelter, Princeton) | ||
Theresa Ranft edited English subtitles for The Economics of Wine (Orley Ashenfelter, Princeton) | ||
Theresa Ranft edited English subtitles for The Economics of Wine (Orley Ashenfelter, Princeton) | ||
Kirstin Cosper edited English subtitles for The Economics of Wine (Orley Ashenfelter, Princeton) | ||
Kirstin Cosper edited English subtitles for The Economics of Wine (Orley Ashenfelter, Princeton) | ||
Kirstin Cosper edited English subtitles for The Economics of Wine (Orley Ashenfelter, Princeton) | ||
Kirstin Cosper edited English subtitles for The Economics of Wine (Orley Ashenfelter, Princeton) | ||
Kirstin Cosper edited English subtitles for The Economics of Wine (Orley Ashenfelter, Princeton) |