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Thursday, 8 December 2016

Costly Signalling - The Peacock Effect

Why evolution drives us to choose an expensively packaged wine

Over a Marques et Co-op lunch at Carre des Feuillants, two bottles of wine sparked a discussion about behavioural economics, choice architecture and signalling.

Both were Rhônes, both were Very Good. But this was not about the liquid in the bottle - at least not specifically.

Rather we considered the relationship between the presentation of each wine and the quality of it.

Exhibit #1 Ortas Ico(o)n in a heavyweight bottle with a contemporary, striking-yet-understated label and matching foil cover, you would revel in a frisson of sophistication with this beautiful object standing on your dinner table.
Exhibit #2 Cellier des Princes Chateauneuf du Pape 2010 standard weight bottle with a traditional chateau engraving picture and an embossed neck. Smart yet deeply conservative, traditional and unexciting.
The Ortas looks like a smart wine, it looks expensive and the heavy bottle reinforces that impression. The contemporary label is classy, modern and unfussy.

By contrast, the Cellier des Princes looks solid and dependable, but lacks the self-confident edginess of the Ortas.

There are some in wine writing with a purist view of wine labelling, considering that the only thing that matters is the liquid in the bottle. To me, this demonstrates a good understanding of wine, but a poorer concept of human behaviour and choice architecture.

The Ortas looks expensive - which it is. It makes a statement not only about itself but also about the person buying and serving it; that they are modern and sophisticated.

Deconstructing the signalling here, if the label displays sophistication and attention to detail, then we unthinkingly transfer those attributes to the wine itself, imbuing the product with the characteristics of its presentation.

Our dinner party guests pick up the same cues from the bottle and imbue us, the server, with the same characteristics. That we do this does not make us bad people, it merely makes us human.

Then, we taste the wine and as long as the experience is not inconsistent with the impression created by the bottle packaging we do not bother to revisit it.

For those people who feel better qualified to assess the sophistication of label than they do of a wine, the presentation is a handy short-cut to assessing the quality of the product.

The Cellier des Princes makes no less a statement about both the wine in the bottle and the buyer - but these statements are less-well aligned to the underlying reality. The label says traditional, staid, conservative, unexciting; whereas the wine is complex, sophisticated and ambitious. And the buyer of the wine would likely be equally knowledgeable and sophisticated.

A behavioural economics rule-of-thumb suggests that an effective wine label should look just slightly more expensive than the price actually charged for the wine - that way the buyer infers it is a good wine and feels they have not overpaid.

This principle holds for the Ortas. If the wine looks significantly more expensive than its actual price, it risks being deemed an impostor, an overclaiming fake, once found out. And since we do not like to feel tricked, we would be resentful of it for having duped us.

By contrast, a wine that presents itself as less sophisticated than it actually is does no-one any favours; the buyer feels slightly embarrassed, explaining to guests "It looks a bit basic but it's actually quite good" and the seller finds it harder to command the price he believes the wine is worth.

It may be true that you should not judge a book by the cover - but with a book you can always read the blurb or dip into it for a page or two.

This is not possible with a bottle of wine on a shelf. And life is too short to get out your wine guide app to check whether this wine that looks like it costs €15 is really worth the €25 price tag.

So it behoves a wine to signal its quality through the way it is presented to facilitate navigating the choice architecture of selecting something for your Sunday lunch or dinner party - the front and back labels, the foil seal, the bottle shape and weight, these all have a role to play in giving the buyer cues about what to expect and how much to pay for the wine.

Rory Sutherland has put forward the idea that all advertising is costly signalling - add to this Mark Earls' herding theories and we can make sense of why more expensive packaging connotes a better wine - we infer that the producer is sufficiently confident of his product's superiority to spend more money in signalling this.

Since the producer is doing this apparently successfully, we then infer that people must be buying the wine in sufficient quantities to make it worthwhile.

Therefore, we can successfully outsource the cognitive process required to choose the wine - if it looks more expensively packaged, it must be good.

This is no different from a strutting peacock - the importance of costly signalling is fundamental to our evolution.

Peacock image: https://i.ytimg.com/vi/Q7FKViW9mpw/maxresdefault.jpg

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