On the Tail-End of the Probability Distribution3. December 2012 by Joachim Goldberg
“You can learn a lot about saving money from millionaires,” my mother-in-law used to say as she headed off to Aldi on her shopping trips. I often indulged her food preferences, but when it came to wine I have never been convinced there are cheaper alternatives to Bordeaux that are just as good. I like to think I am not a wine snob, and I do not treat wine labels as status symbols, but quality is important for me. So the idea of being able to find an enjoyable bottle for less than five euros is something I struggle to imagine, especially when much of that price is composed of value-added tax, retail margins and glass. Yet, as I discovered on a TV wine show recently, the average amount German wine-drinkers are prepared to splurge on a bottle of ruby nectar is just €2.50. Many consumers consider a price of three euros per bottle to be quite expensive.
The TV show lined up a test bank of wines, including some from low-cost supermarkets like Aldi, to see whether it was possible pick them out in blind tasting. None other than Stuart Pigott, the British wine critic, was invited to take the challenge. He was able to distinguish only one of the four ‘value’ wines in the line-up from those whose prices were more than three times higher. I could almost picture the smirk on the face of my friend K., who has always mocked my fondness for Bordeaux wine: “You see, it’s just a confidence trick.” I could also see myself deriding his excessive frugality. So I shooed away the picture before it descended into a dispute as petty as it was imaginary. Still, I had to wonder what would have happened if the celebrated Pigott had indeed been able list all the wines precisely in price order. That would not have made good television. Certainly, the producers would not have been able to put together a broadcast with the title ‘Good things don’t have to be expensive’. They know there is nothing TV audiences like better than to see an expert get things completely wrong.
Good television is made around things that are dramatic and colourful. These things also tend to be rare but, because we are frequently exposed to them through media coverage, we often believe they are more frequently occurring than they really are (availability heuristic). The tendency causes us to overestimate the probability of rare events. As no TV shows are made about wine critics who correctly distinguish low-priced wines from their more expensive alternatives, one comes away with the impression these experts never get it right, whereas such missteps are actually quite rare. When the media focuses on billionaire Bill Gates, we tend to forget that the vast majority of computer geeks who disappear into their garage do not re-emerge with a Microsoft. Similarly, although Harvard dorm rooms have been the birthplace of many great ideas, the likelihood of one like Facebook being born is nonetheless very tiny. The availability heuristic trips us up because nobody cares about the talented but unemployed computer geek; the bright but undiscovered Harvard dropout; or the capable but uncelebrated wine critic.