Why we do what we do is a question most of us have difficulty answering for certain. As a wealth advisor, part of my job is to understand a condition known as ‘behavioural investing’ – an awareness of the human biases that can often influence a client’s investment decision-making.
While I’ve discussed a number of these biases lately, today I want to focus on one called Recency Effect – when you buy an investment based on its recent performance, you could be vulnerable to the tendency when making a decision to give recent events more weight than things further in the past. But rather than discuss Recency Effect in terms of investing, this time I want to examine the bias in terms of wine.
At the Olympics, the best finish first. In wine, the first usually tend to finish best
Beppi Crosariol, wine columnist for The Globe and Mail, wrote a fascinating piece (November 3, 2009) called: In wine tasting, order trumps flavor, a story which goes to prove the old adage that the first tends to finish best.
Mr. Crosariol observed: ‘Lending credence to what cynics have long suspected, researchers in Ontario and Illinois have shown that, when presented with several unlabelled – and unbeknownst to them, identical – wine samples, tasters had an irrational bias for the first. As for flavour differences, they played no role in the results because the 142 tasters were given the same samples in each set of three to five wines. In fact, the samples were poured from the same bottle.’
‘There is always a first-is-best bias,’ observed Antonia Mantonakis, an assistant business professor at Brock University in St. Catharines, Ont., who was lead author of the study, published in U.S.-based Psychological Science. The study, titled Order in Choice: Effects of Serial Position on Preferences, builds on similar work undertaken as far back as the mid-1950s by Ferrer Filipello, a wine researcher at the University of California at Davis.
So far, so good. But, as the sample size grew from three to five wines, the pendulum began swinging, specifically among wine-savvy tasters, toward the last sample over the first. ‘As the number of options increases, especially for high-knowledge consumers, the primacy advantage starts to turn into a recency advantage, or a last-is-best advantage,’ Professor Mantonakis concluded.
According to Mr. Crosariol, she and her fellow researchers at the faculty of business at Brock and the University of Chicago’s Booth School of Business also wanted to test a hunch that wine aficionados ultimately would transcend the primacy prejudice if given enough choices. Their reasoning: Wine geeks thrive on discovering new and ever-better drinking experiences, so they’re more likely to give subsequent options a chance.
A note on methodology
Participants were drawn from the Brock student body and local community and randomly assigned to a certain wine – a riesling, a cabernet and so on – to rule out the potential peculiarities of any one varietal. All wines were Canadian, since Brock University is the major research school in the Niagara wine region.
Serial position on preferences
While the results have an obvious implication for the wine industry, the Brock study clearly has implications that go beyond wine – one reason it was published in Psychological Science rather than in a wine journal. In fact, wine is a near-ideal prism through which to test general hypotheses about taste and the effects of serial position on preferences.
As an occasional tippler myself, I’m well aware that the wine game can be pretentious and open to fallacy and ridicule. The Brock study was not without its shortcomings. It capped the sample number at five even though the researchers would have liked to include a longer sequence. Ten or 12 wines would have enabled them to test the recency effect more fully.
Enter the university ethics board
Unfortunately, the university ethics board prohibited them from administering more than 120 millilitres of wine to each subject in one sitting. So what began as a science experiment in fact turned, as Mr. Crosariol graphically put it, ‘into a scene akin to a trip downtown in the back of a cruiser after a drunk-driving charge.’ Said Professor Mantonakis ruefully: ‘They had to sit in the lab for 30 minutes afterward and take a Breathalyzer.’
There’s a lesson in the Brock study for those of us who enjoy wine at home. If you intend to serve several vintages at a dinner party, don’t blow the best at the start of the evening. The first wine will tend to show well anyway, and you don’t want the evening to go downhill from there.
Geoff Funke, Senior Wealth Advisor, Scotia Wealth Management, 604-535-4721.