Here’s a consumer tip, for what it’s worth

‘Suppose you bought a case of claret a few years ago for £20 a bottle. It now sells at auction for about £75. You have decided to drink a bottle. Which of the following best captures your feeling of the cost to you of drinking the bottle?

1. £0. I already paid for it.
2. £20 — what I paid for it.
3. £20 plus interest.
4. £75, what I could get if I sold the bottle.
5. -£55. I get to drink a bottle that is worth £75 that I only paid £20 for, so I save money by drinking it.’

This question (with prices in dollars) was given to readers of Liquid Assets, an annual newsletter on wine auction pricing. It was posed by Richard Thaler, later to win the Nobel Prize in Economics. The proportion choosing each answer was:

1. 30%
2. 18%
3. 7%
4. 20%
5. 25%

To an economist, there is but one correct answer to this question: by drinking a bottle of wine which could be sold for £75 you are sacrificing £75 of utility which could be used for something else. In economics, in ascending order of wrongness, the answers would be 4 (the ‘right’ answer) followed by 3, 2, 1 and 5. On the other hand, as any hedonist will have noticed, the more you think like an economist, the less you will enjoy drinking the wine.

In truth, whether something feels expensive is only tangentially connected to what you really pay for it. I once persuaded someone to get Sky television by pointing out that they spent £2 a day on newspapers. ‘So what?’ they said. ‘Well, if a newspaper is worth £1, then 80p a day isn’t much to pay for 200 extra channels.’ I have even played the same mind-trick on myself: I no longer feel guilty buying expensive tea since I calculated that exotic tea made with tap water costs far less per pint than bottled water.