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COSTS OF BULLSHIT
Wine, Bullshit Markups, and the Myers-Briggs
Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passions, they cannot alter the state of facts and evidence.
—JOHN ADAMS
Consider the following scenario: You want to buy Merlot for a special occasion. You narrow it down to two selections and read the reviews of each on winemag.com:
The third reserve by this producer made of this variety, this is 100% estate and varietal. It unfurls in fireplace smoke, red and black berry, leather and tobacco, with an edginess of cedar and herb. The texture is soft and integrated around a full-bodied concentration of flavor. Rating: 93 points.1
The merest hint of dark chocolate and a touch of graphite play alongside the juicy ripe cherry notes on the nose. The palate is fresh and is held by a fine gauze of soft tannins on its medium body. This is an elegant, understated red that is evolving beautifully and will evolve further. Lovely now. Drink by 2030. Rating: 93 points.2
Which wine will you purchase? The first review is for the Jarvis 2012 Estate Grown Cave Fermented Reserve Merlot (Napa Valley), and it sells for $200 a bottle. The second is for the Pleil 2015 Ried Gerichtsberg Merlot (Niederösterreich), and it sells for $19 a bottle. Do the descriptions betray the stark difference in price?
In the multibillion-dollar wine business, such language is commonplace. Most wine labels describe a wine’s aroma or bouquet to characterize its scent. They mention the body or weight to describe a wine’s alcohol attributes. References are made to crispness or smoothness to describe how refreshing or acidic its flavor. A wine might also be described as juicy, chewy, angular, laser-like, oaked, or my personal favorite, intellectually satisfying. Who doesn’t want to drink something reminiscent of a cozy cottage fireplace in the middle of a frigid winter? But are these descriptions accurate and useful? To better understand how wine is packaged and sold, I spent time researching the industry and speaking with people on the front lines of production and sales.
Robert Hodgson is a retired professor of statistics at Humboldt State University and the proprietor of Fieldbrook Winery in northwestern California. Founded in 1976, Fieldbrook is a small operation, selling 1,500 cases of wine each year, with no shortage of wine competition awards. In the wine world, awards bring much more than prestige. Awards can boost reputation and sales—wines bearing gold, silver, or bronze foil stickers can sell up to seven times as many bottles as the same wine with no sticker.3
Wondering how his wines could win a gold medal at one competition, yet fail miserably in others, Hodgson decided to get his hands on the competition data. When he analyzed it, Hodgson found that medals appeared to be awarded at random, with each wine having a 9% chance of winning a gold medal in any given competition.
In one of Hodgson’s own experiments, he blindfolded wine experts and offered each of them three glasses of wine to taste.4 The blindfold was necessary because Hodgson didn’t want the experts to evaluate the wines based on their labels or the 36 unique color states of wine. The experts then graded each sample according to the industry’s standard rating scale running from “good,” a solid, well-made wine (80–84); to “very good,” a wine with special qualities (85–89); to “outstanding,” a wine of superior character and style (90–94); to “classic,” a great wine (95–100).
On average, the judges’ ratings of the wines varied by 4 points (plus or minus). But here was the catch—all three glasses were poured from the same bottle. Nonetheless, a wine rated 92 by one expert in her first trial would be rated an 88 or 96 by the same expert in subsequent trials. Some of the judges did much worse. Only one in ten judges regularly rated the same wine within a range of ±2 points. Hodgson later found that judges in the California State Fair wine competition (the oldest and most prestigious in North America), whose ratings were the most consistent in any given year, landed in the middle of the pack in other years, suggesting that a “consistent” performance in any particular year was simply chance. Furthermore, less than 10% of the judges were able to replicate their scores within a single medal group. Another 10% scored the same wine a gold that they had earlier scored a bronze.
Hodgson’s results weren’t unique. Researcher Frédéric Brochet wanted to know if wine critics’ taste buds can reliably distinguish between red and white wines. Brochet had 54 wine experts report their opinions on two glasses of wine, one “red” and the other white. In actuality, the two wines were identical white wines—the “red” wine had been dyed with food coloring. Sure enough, the so-called experts tended to describe Brochet’s “red” wine in language typically reserved for characterizing reds, referring to it as “jammy” or containing “flavors imparted by its crushed red fruit.” Not one of the 54 experts surveyed detected that the red wine was, in fact, a white.5
What are we to make of this? Wine critics and competition judges are experts in the field. If they are inconsistent in their ratings and so easily duped by red dye, what about the rest of us? We can hardly expect a subjective thing like wine tasting to be an exact science, but it doesn’t make much sense to put confidence in wine awards and professional reviews if there are no systematic, quantifiable standards. A scientific approach requires test cases and a verifiable set of standards that everyone adheres to. If wine experts don’t use these things and can’t reliably differentiate between a Clos Pegase Merlot and a Cannonball Merlot, it seems likely that professional wine descriptions will continue to proliferate bullshit.
Aside from reading the descriptions, people often assume that the quality of a wine is positively correlated with its price.6 This is why marketers only need to make a wine sound expensive. Like many commodities, wine is a Veblen good. Veblen goods are luxury goods whose prices do not follow the typical laws of supply and demand. They are in demand because they are expensive. Marketers are well aware that people use price as a rule of thumb. When purchasing a bottle of wine for a special occasion, people might choose an $80 bottle over a $25 bottle because they assume the pricier bottle will taste better.
Massachusetts Institute of Technology behavioral economist Coco Krumme took a closer look at the relationship between professional wine reviews and the price of wine. She studied the words used to describe 3,000 different wines—ranging in price from $5 to $200—from an online aggregator of professional reviews.7 Using text analysis, Krumme determined how frequently single words and unique combinations of words appeared in the reviews. She found that cheap and expensive wine words are used differently. Cheap wine words (for example, juicy, fruity, tasty) were used more frequently across descriptions, whereas top-end wine words tended to be used relatively infrequently, and sometimes reviews created a new vocabulary all together. Cheap wines tended to be described as pleasing, refreshing, and enjoyable and recommended with cheaper dishes such as chicken and pizza. Expensive wines tended to be described with darker words (for example, intense, supple), single-flavor words (for example, tobacco, chocolate), and exclusive-sounding words (for example, elegant, cuvée) and recommended with more expensive dishes like shellfish and chateaubriand steak. Based on her analysis, Krumme offered the following description of an expensive wine: “A velvety chocolate texture and enticingly layered, yet creamy nose, this wine abounds with focused cassis and a silky ruby finish. Lush, elegant, and nuanced. Pair with pork and shellfish.”
It is easy for wine marketers to pass bullshit for something valid because most consumers know very little about wine. If you are like most people, you believe that wine gets better with age. You might be surprised to learn that most wines are intended to be drunk now. Those wines are not going to get better over time—they are more than likely to get worse. There are only a few wines bottled for aging, and they are prohibitively expensive for all but the most avid enthusiasts. If you happen to be saving affordable wine, it is safe to assume that the taste will not be improved by your decision to keep it unopened.
After reviewing the data, there are two reasonable conclusions to reach: Wine selling is much more about selling than it is about wine. And with a total US market size of over $70 billion and a global market of over $350 billion, wine bullshit is good for wine sellers and bad for our wallets. The good news is that you no longer have to feel guilty about buying cheap wine!
We will get a much better understanding of what we prefer by collecting relevant data than we will from experts’ wine bullshit. Discovering what wines you like requires tasting a lot of wine. If the head waiter suggests a Screaming Eagle Cabernet Sauvignon with your meal, you might find the wine very pleasing, but it doesn’t mean there aren’t dozens of other wines out there you would like even better. The only way you discover that is by approaching wine like a scientist would and trying the wines yourself. Wine retailers do this by applying two rules when selecting their own wine. Rule number 1: Drink what tastes good. Rule number 2: Drink what you can afford. Both rules are very sensible. Combine the two rules and you’ve got a serious wine decision strategy.
BULLSHIT MARKUPS
Given the subjective nature of wine value and price, I began thinking more broadly about the price of goods—or, more accurately, the marked-up prices of goods. A markup is the ratio between the cost of the good or service and its selling price. For instance, a retail markup is calculated as the difference between the wholesale price (the price charged by producers to retailers) and retail price (the price charged by retailers to consumers).8 Most goods and services are marked up to a degree, and this is necessary, as turning a profit is ultimately the goal of any business.
As a bullshit analyst, however, I am interested in whether a markup is applied reasonably. To determine this, we need a baseline to serve as a standard of comparison. My reference point is the fact that the accepted retail markup for most items is between 50 and 100%. That means the price of a good/service usually costs the consumer twice that it costs a retailer to provide or deliver. A 50–100% markup is reasonable for the investments and risks the retailer is willing to take—I have no problem paying it. However, we would be naive to believe all retail markups are 50–100%.9 Purchasing wine at a restaurant will come with a markup of about 400%. As a result, some people opt for soda instead, believing they are saving money. Yet the markup of restaurant soda is outrageously high, at over 1,000%.
Most any good or service comes with a markup built into its price. When the markup is beyond that which covers the costs of doing business and a reasonable profit, it is a bullshit markup. For example, it is common for car buyers to negotiate the fake sticker price of a new car because they know that car dealers have added a high markup with the expectation that buyers will negotiate the price down to a more reasonable level. It’s a win-win because even if buyers manage to cut a $5,000 markup in half, the dealer is still making $2,500 on the sale. What is more, the moment a car buyer wishes to add any unnecessary but costly add-ons, like extended warranties, anti-theft window etching, racing-style seats, brake caliper covers, or moisture-sensing window wipers, the markup can quickly skyrocket back to $5,000 and beyond. From a salesperson’s perspective, bullshit markups are either the icing on the cake or their bread and butter. From a consumer’s perspective, paying bullshit markups makes no sense at all.
Bullshit markups in the form of confidence tricks cost consumers in the United States over $800 million per year, with the average loss per person lodging a complaint at over $6,000. Confidence tricks are attempts to defraud people by first gaining their trust and then exploiting them by taking advantage of their credulity. The most common types involve dating and romance, gambling, and investment schemes, with over 80% delivered via phone or e-mail.10 Many confidence tricks are pure lies intended to lure victims. The reason that many confidence tricks are bullshit markups is that they survive by establishing trust and offering promises to consumers that, upon further reflection, could not possibly be delivered. Consumers invest in fortune-telling services for $3.95 per minute, on average, but they receive no actual goods or services in return.11 Many tarot card readers, crystal ball fortune-tellers, and horse racing handicappers who sell their betting tips rarely think of their confidence tricks as tricks because they actually believe in their methods of foretelling the future. They appear to believe their own bullshit. But their services come at a great markup—the chances that you will gain actual value from the information they sell you are no greater than the chances of receiving a large sum of money on the condition you help someone overseas transfer money out of their country using your bank account details.
Why People Pay for Bullshit Markups
Psychological research suggests that there are at least three good reasons why people tend to neglect the better voices of critical thinking and fork over good money for bullshit markups: a preference for bullshit over the truth, hearing is believing, and the power of intuition.
A Preference for Bullshit Over the Truth
Sometimes it is easier to accept bullshit than to fight it. Preferring bullshit over the truth is especially likely to occur when the bullshit aligns with our views of the world or the way we want or hope things to be. We like what we like—and sometimes what we like doesn’t correspond with the truth or the available evidence. It is not uncommon for people to prefer to believe the bullshit that global warming is a hoax than to accept the facts that icebergs are melting, floods and droughts are increasing, the Amazon rain forest is disappearing, and dangerous methane gases are bubbling up from the ocean floor all because global temperatures are rising.
When my daughter, Sydney, was eight years old, I signed her up for a one-week golf camp for kids. For only $85, she received 15 hours of instruction from two golf pros—what a great deal! By the end of the week, I was asked by the pros if I would be interested in registering my daughter for the junior golf club. The pros expressed to me that not all kids were invited to participate, but because of her exceptional athleticism and talent, she was being recruited. They gave me a pamphlet explaining what was involved in the junior golf club, which cost $200 for 12 hours of instruction per month. The next day I received a follow-up call from the golf pros who reminded me that thousands of college scholarships go unclaimed each year in women’s golf and that they could see great potential in my daughter. They depicted it as a win-win situation. Their claims about Sydney’s golf skill and potential were entirely unsubstantiated. Not only did I see how miserable she was at golf, but Sydney was ten times better at tennis than golf. When she was four, we began playing tennis and we both had dreams of her becoming the next Venus Williams. The problem was, Sydney didn’t want to play tennis; she wanted to play golf. It would have been very easy for me to pretend my daughter had great potential in golf. Though it would have been easier for me to believe the golf pros’ bullshit, which would have allowed me to justify paying for my daughter’s golfing habits, I chose not to prefer bullshit over the truth. I continued paying for golf lessons because that is what she wanted to do. I want my daughter to be happy, not moneyball her chances to be a professional athlete. The real win-win was in Sydney’s decision to participate in the activity she found most enjoyable and rewarding and my continued grip on the truth.
Copyright © 2021 by John V. Petrocelli
