Champagne, cava, Prosecco, and whisky: Drinks and diminishing marginal utility

By David Shaw.

Christmas is here, and for many people that means buying some booze. As it’s a special occasion, not just any alcohol will do; many will buy champagne, if not for Christmas then to see in the New Year. And a dram (whisky) is another traditional way to celebrate Hogmanay.  But when budgets are tight and inflation is on the up, champagne and whisky become very expensive. Even for those with plentiful budgets, certain drinks do not provide much value for money. But how to decide on the value of drinks? One useful consideration is diminishing marginal utility (DMU).

DMU is basically a way of expressing the point that the more you have of something, the less valuable it is, relatively speaking. A common example concerns cake. If one person has had no cake, and one person has had two slices, then the utility of giving that latter person one more slice is a lot less than that derived from giving one slice to the person who has had none. Giving one more slice to the person who already had two would benefit them, but would only give them 50% more than they’ve already had; the person who has had none would derive much more utility from the cake, relatively speaking.

So let them eat cake, but what does that have to do with the price of drink? Here, the issue is not division of the drink among multiple persons, but the diminishing value of spending more money on drinks that may be very similar. It is almost a cliché that champagne is the best sparkling wine; the appellation is seen as a mark of very high quality. But most major brands of champagne start at around £40 per bottle. Cava, the Spanish sparkling wine made using the same method, has excellent vintages available from only £10 per bottle. Though it’s a matter of personal taste, I would say that some of the cavas in that price range are virtually indistinguishable from some common champagnes (if that’s not a contradiction in terms). But even if the cavas were slightly worse, are the champagnes really four times as good? It seems very unlikely that it is worth spending four times as much for a taste that may be inferior, simply for the caché of knowing how much money you’ve spent to get the bottle with the big brand name on it. But if you derive a thrill from spending more money than necessary you may have more money than sense.

Prosecco is a different matter. It is generally cheaper than cava, but is made using a quite different method and cannot really be seen as an analogue to champagne in the same way. Indeed, the taste is quite different, being generally sweeter. In my view, prosecco is (generally) an inferior drink. But even if that is true, what does diminishing marginal utility tell us here? In fact, cava is only around 10-15% more expensive than prosecco, hardly the order of magnitude that separates a good cava from a good champagne. Paying 10% more for something that tastes just like or better than champagne may indeed be better value for money. Ironically, if there’s no cava available, it might even be worth spending more than four times to get a good champagne rather than prosecco, regardless of what your philosopher accountant has to say about it.

What about whisky? A good bottle of single malt starts at around £50, not unlike champagne – though bottles of whisky don’t have the problem of going out of date within an hour of opening them. Cheap whisky (blends) can be had for less than half that price. Many people think that a good single malt is at least twice as good as cheap whisky; I would agree. But when you get into the rarer malts, it is not uncommon to see bottles priced at £200, £500, or more than a thousand pounds. A regular Lagavulin costs £60; the 26 year old one costs £1500. It may be great, but how can it be 25 times as good? Of course, expensive bottles of whisky, like expensive bottles of champagne, are often seen as an investment and as such may never be opened by the person who buys them. To someone who likes fine drinks, that makes spending so much money on them even dafter; where is the utility in looking at whisky but never drinking it?

Utility considerations also come into play when trying new whiskies. Often there are interesting new whiskies for sale in the supermarket. But it’s quite risky to buy a whole bottle of a whisky that you might not like once you open it. For that reason, it makes more sense to try new whiskies in the pub where you can buy 25ml at a time, even if the cost per ml is roughly double what it would be if you had invested in a bottle. Here, you only risk wasting £4 if you don’t like the whisky, versus £60 or more if you went for a bottle. (The utility of buying any whisky where whisky is spelt differently is questionable in the extreme – another personal opinion, of course.)

Once the beverages have been bought, and the party has started, another type of diminishing marginal utility comes into play. The first drink is amazing, and so is the second; the third may be too. After that it’s downhill, sometimes literally. “So I drank one, it became four; and when I fell on the floor I drank more”, as Morrissey sang. Both in terms of diminishing marginal utility of each additional drink, and the augmenting dual disutility of increasing drunkenness and increasing risk of a major hangover, overindulging can cost us dear – all the more so if we bought champagne instead of cava for Christmas.

 

Author: David Shaw

Affiliations:  Care and Public Health Research Institute, Maastricht University; Institute for Biomedical Ethics, University of Basel

Competing interests: I wasn’t under the influence when I wrote this, but I wanted to be.

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