An Economic Theory of Thanksgiving Wine

Thursday is Thanksgiving Day here in the United States and many of us will gather with family and friends for the holiday feast. If you have been invited to share Thanksgiving with others (and if you are interested enough in wine to be reading this column), then you must confront a perennial problem: what wine should  you bring?

Deadweight Loss?

Why is the choice of a gift wine an economic problem? Well, it isn’t much of a problem if you plan to drink it all yourself. Then you should just buy what you like — but don’t expect to be invited back next year!

Since the point will be to share the wine with other guests, the choice is more difficult because just as you can’t be sure exactly what dishes will be served, you cannot be certain what wines the other guests will like the best.

There is a pretty good chance that you will experience what economists call a “deadweight loss” which is more or less where the benefit that the guests derive from your wine is less than what they’d have gained from a simple cash transfer.   The story (which is possibly true) is told about the time Malcolm Forbes threw himself an extravagant birthday party where the guests were served some of the rarest, most expensive wines on the planet. Forbes went from guest to guest pouring the evening’s show-stopper wine. Finally he came to Warren Buffet. Wine? said Forbes with a smile. No thanks, Buffet replied. I’ll take the cash!

Warren Buffet understood the concept of deadweight loss and wanted nothing to do with it!

The Problem of Other People’s Money

The problem is asymmetric information. You know your own preferences and budget situation pretty well and so you have a fairly good idea of what you are giving up when you buy an expensive bottle of wine as a gift. But you don’t know the preferences of the other guests very well or whether they would prefer your wine or a simple cash payment to be spent on something else. You can’t be sure that their gain is greater than  your loss.

This leads (I hope you are following along) to the conclusion that you are most efficient when you spend your own money on yourself because you can fairly well calculate both the gain and the opportunity cost. You are less efficient (in terms of deadweight loss) when spend your money on others. You are even less efficient when you spend other people’s money on yourself. And you are hopelessly inefficient when you spend others people’s money on other people. What do you think?

So it would seem like the most efficient thing to do would be to decline that dinner invitation and stay home with your wine. How sad! No wonder economics is called the “dismal science.”

It’s Not About the Wine

But here’s the notion that saves the day. Thanksgiving is not really about the wine (or the turkey or the green bean casserole), it is about the sharing. Thanksgiving is more public or communal good than private good. And so, if you do it well, the particular elements of Thanksgiving including the wine will play a secondary role to the general warmth of the shared experience.

I used to get frustrated when wine wasn’t the centerpiece of gatherings, some of which were actually organized to celebrate the wine. But then I got over it. Wine is doing its job when it makes everything else better. Don’t you agree?

This fact changes a bit how you might approach your choice of a Thanksgiving wine to share. Cost is nearly irrelevant. Picking a wine that draws undue attention to you (and  your fine taste or great wealth) almost defeats the purpose.  A modest wine that makes everyone smile — maybe something with bubbles? — will serve very well. And then you can concentrate on what Thanksgiving is really about.

That said, no one will complain if you bring a nice Port, Madeira, or Sauternes to savor at the end of the meal.

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Happy Thanksgiving, everyone. Enjoy the wine and the feast and most of all each other!

5 responses

  1. Mike – you should know better! There is no place in this world for an economist with common sense – it defies the most basic presumptions….kidding, of course. Nicely written piece which any self-aware wine geek has grappled with from time to time. I’m totally in your court – it is the experience we are all enjoying, and the wine is a part of it, but not the centerpiece (even if it is, ala a focused tasting). At the end of the day/meal/event, the wine is transient – either down the gullet or the sink – but we retain the memories (same with the food for all those foodies among us). For us wine geeks, it is the flavors and pleasures of that special bottle – and often times it is “ah-ha’s” and insights gathered from others in attendance. Relish the journey…

  2. Mike: I agree, I use to try and educate right at the table with the “A” wines I pulled from my cellar…It was not worth it so I bring one good wine (making sure my glass is full) and let it go where it wants to.
    Also bring a white and rose which the guest usually pick anyway.
    Eric Awes
    San Diego, CA—and Gig Harbor, WA (1990-2011)

  3. Mike – Happy Thanksgiving! Right on the money with this analysis. The food, wine and the people ALL serve to make the gathering greater than just the some of it’s parts. It sounds like “New math” but it’s true. Wine has been called a “social lubricant” so it might be a contributing factor to the usual familial squabbles that occur near the holidays, but even those are part of the experience. Any evening shared with friends, family, food and wine is an evening well spent and something that is a net positive no matter how you calculate it! Have a great Thanksgiving…enjoy the wine!

    Jim, Melissa and Shelby (the blue heeler)

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