Price and Concept as Complements or Substitutes: Signaling and Perception in Wine Tasting

Abstract: Previous research has established a correlation between reported pleasantness and the price of a wine, a result which invites an alternative perspective on the fundamentals of economic theorizing. This study investigates the importance of the price signal for this effect, relative to a non-monetary signal, by randomly assigning wine tasters to four different treatments. The wine used is from a wine category that does not fit immediately into most respondents' reference frame. Furthermore, the experiment supplements previous literature by adopting an incentive-compatible method. The results show a statistically significant but limited framing effect from the signals, including a complementary effect. In contrast with the standard view of incentives in experiments, the inclusion of incentives drastically leads to both higher valuations and a significant increase in variance, a result interpreted from a heuristic perspective. It is argued that this type of experiment serves to highlight the strengths and limitations of rational choice theory, helps to point towards a richer theory of economic behavior, and emphasizes the interactions between preferences, prices and expectations.