AAWE, Economics Dept, New York University, 19 W 4th St, 6Fl., New York NY 10012aawe@wine-economics.org

AAWE Working Paper No. 122 – Economics

 

Risk taking when buying wine: an experimental investigation

J. François Outreville

Abstract

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The act of purchasing wines is clouded with insecurity and many wine purchases therefore involve risk-aversion. Risks include functional, such as the taste of the wine or the physical aspects of the product, social, such as being embarrassed is the quality is not adequate, financial because of the cost of the product. Different people will respond to similar risky situations in very different ways. Numerous experiments have been undertaken by psychologists and economists in attempts to understand the behavior of risk-averse persons.

The experiments reported in this paper try to shed some light on this issue by analyzing choices within the framework of a purchase decision of a wine bottle when the context assumes a possible functional risk. The experiments are conducted with graduate and undergraduate students in different countries using a questionnaire and assuming either no information or full information on the probability that the wine may have a functional risk. The demand function is negatively related to the price of a bottle as expected. When potential buyers are facing a known functional risk, the demand curve is shifting downward.

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