Analytics for Fine Wine: Realistic Prices

• Agricultural Economics Workshop

Date and Location

Thursday, October 17, 2019, 4:10 PM - 5:30 PM
ARE Library Conference Room, 4101 Social Sciences and Humanities

Abstract

Earlier publications indicate that the price of young wines cannot be estimated accurately through weather conditions. Considering that a majority of wine trade occurs when the wine is young and even before it is bottled, determining realistic prices for these fine wines accurately is one of the most critical decisions. Surveys of leading wine merchants and industry experts exhibit significant departures from the realized market prices.

We develop a pricing model for fine wines using weather, market and expert reviews. The financial exchange for fine wines called Liv-ex has already adopted our estimated prices and tagged them as “realistic prices.” Our approach combines temperature, rainfall, market fluctuations and tasting expert scores and leads to accurate estimations that the wine industry has not seen before. Our study shows that higher temperatures, lower levels of precipitation, appreciation in the Liv-ex 100 index as a market indicator, and higher barrel scores increase market prices. We conduct a comprehensive set of robustness checks and show that the mean absolute deviation of actual market prices from our estimated prices is substantially smaller than any academic benchmark. Our realistic prices help create transparency in this highly opaque market. When compared with the realized prices, our realistic prices guide buyers (e.g., distributors, restaurateurs, merchants) in their purchase decisions as they can determine whether a wine is underpriced or overpriced.