Not much of a wine drinker himself, Antonio Rangel used wine in a study showing that perception of value heavily influences taste.

The Price is Wrong

By Mike Rogers

After all the sniffing, swishing, and swirling is done, if you’ve ever wondered whether you could fool your dinner guests by filling an empty bottle of a premium Cabernet Sauvignon with that $3.99 special at the supermarket, here’s the scientific skinny. In a study released earlier this year, a team of investigators, including Caltech associate professor of economics Antonio Rangel ’93, determined that the stated price of wine directly affects how much people like it. When they drink cheap wine that they’re told is expensive, they say they like it more than pricey wine that’s masquerading as the cheap stuff.

Hundreds of past marketing studies have compared price to preference. What’s new about this experiment is that Rangel and his colleagues put their subjects—20 Caltech undergraduates, graduate students, and postdocs—in a functional MRI machine that allowed them to observe brain activity during the wine tastings. While people might lie, the latest research suggests that brains don’t. To track changes in mental activity, Rangel measured changes in the blood flow in the subjects’ medial orbitofrontal cortex, a region of the brain believed to be involved in people’s experience of pleasure. The study, Rangel says, showed that “prices, by themselves, affect activity in an area of the brain that is thought to encode the pleasure of an experience.” Most people believe that the more they pay for something, the better it must be, and this study shows that, in the case of wine, at least, they seem to like “expensive” stuff more, regardless of its actual attributes.

Like oenophiles at the opening of the Pinot Noir season, the public seemed to lap up Rangel’s wine study, which made headlines and news reports around the world, and even sparked vigorous consumer debates over the Internet about wine pricing. Rangel says that following the report’s January release, he was deluged with phone calls from reporters, a phenomenon that he had never experienced before. His reaction to the outpouring of public interest is restrained: “I don’t have anything interesting to say about this.”

It’s not surprising that Rangel would be mum about the media onslaught, since he hasn’t generally investigated such intoxicating subjects. Rangel, who grew up in Madrid and Mexico City, came to Caltech in 1989 with an interest in physics. But during his sophomore year, he took a class with John Ledyard, Davis Professor of Economics and Social Sciences, was immediately inspired, and became an economics major.

“I just fell in love with economics,” he says. “The fact that you could think analytically about real–world problems was exciting.”

Rangel got his PhD in economics from Harvard in 1998 and then became an assistant professor of economics at Stanford. He focused on theoretical studies of public policy issues such as how to inspire people to take into account the well-being of future generations. In 2001, however, his research direction took a different turn when he collaborated with Stanford economics professor Douglas Bernheim on studies involving addiction and decision–making processes. They developed a theory based on evidence from psychology, neuroscience, and clinical practice that addicts, far from being helpless captives of their addictions, actually understand their susceptibility to addictive substances but have developed ways of tuning out or misinterpreting the environmental signals that would normally help people recognize the costs of an addiction.

“I was always interested in understanding behavior and public policy in situations that weren’t standard,” Rangel says. “But the standard economic models did not apply to behaviors like addictions. I started to read about neuroscience. For one year, I just read and read. It blew my mind how much one could understand about the neuroscience of addiction in ways that were useful for social scientists.” Neuroscience research could be used, for example, to improve public policy regarding addiction.

Rangel’s interest in neuroscience coincided with the emergence of the field of neuroeconomics. About five years ago, social scientists began using brain-imaging techniques like MRIs to obtain visual data of how people make decisions. These scans literally show which parts of the brain are active when people are making economic choices, and scientists believe that as they learn more about the brain, they will be able to develop a neural blueprint of behavior that will have numerous economic, political, social, and even medical applications.

With the opening in 2002 of Caltech’s Broad Center for the Biological Sciences and its sophisticated imaging facilities, the Institute became one of the leaders in neuroeconomics, and in 2006, Rangel departed Stanford for Caltech.

“Caltech has a shot over the next few decades to crack the problem of how the brain makes decisions,” Rangel says. “Why do some people have self–control and others don’t? Why can some people take addictive substances with no ill effects while others become trapped? These and other questions go to the core of who we are, and we now have tools to make significant steps. That’s too beautiful not to be done.”

Switching from theoretical to experimental economics has been “a huge change,” says the Caltech professor. Previously accustomed to sitting alone in his office with a pencil and pad, he now works with a team of graduate students, postdocs, and technicians, and collaborates on experiments with several Caltech biologists.

Rangel, who drinks at most one glass of wine a week, says that the wine study reflects his interest in how the brain distinguishes between attraction and aversion. “We spend more money on products that we believe are higher quality,” he says. “How much is driven by an object’s characteristics, and how much just by our beliefs that it is superior?”

In the wine study, the 20 volunteers sipped wine that they thought were five kinds of Cabernet Sauvignon, ranging in price from $5 to $90. But they were actually only treated to three different brands—the $5 wine presented in both its cheap incarnation and disguised as a $45 brand, along with a $35 brand and a $90 bottle, also presented as a $10 variety. The majority of volunteers preferred the cheap wine over the expensive wine when they thought it had a higher price, but were less enamored of the expensive wine when told it had a price tag of $10. Scans of their brains while they were sipping the wines they said tasted better showed higher activity in the medial orbitofrontal cortex, which is thought to register positive experiences.

“Strictly speaking, all we know is that this area of the brain is more active when subjects believe that wine they are drinking is an expensive brand,” Rangel says.

Although Rangel could conceivably parlay his research findings into a new career as a wine-industry consultant, he says he has no particular interest in marketing. Thus far, only one company has contacted him about his wine study and then only to request a copy of his paper.

Not surprisingly, Rangel says that he had no trouble rustling up volunteers for his wine study. Gathering subjects for an upcoming investigation may not prove so easy. “I want to do a study about pain,” he says. The study will evaluate whether subjects getting a mild electric shock will say that they experience more pain if they are told that the shock is bigger than it actually is, and report feeling less pain if they are told that the shock is smaller than the one they are receiving. “There are applications here for pain management,” Rangel says, “but what I’m really after is understanding the basic science of how we make decisions.” Rangel says that there are strict protocols for conducting experiments involving electric shock, adding, “I put myself through every experiment first. I wouldn’t make anyone else do what I wouldn’t do.”