The Value Of Things

A Chinese man walks into a bar and asks for a whisky. The barman serves him an inferior blend and says “that’ll be £7,600 please.”
This is no joke. It was a scene that played out, for real, in a Swiss hotel earlier this year. The man paid for and enjoyed his whisky, but the extent of the duplicity has only recently come to light.

How much would you pay for a wee dram?

The Chinese man in question was Zhang Wei, a 36 year old fantasy writer who earned in excess of £10 million last year, so I suppose he can afford it. The whisky in question came from an unopened bottle of Macallan labelled 1878, but tests revealed it was not even a single malt and was probably created between 1970 and 1972.

Mr Zhang wrote on his blog that “it had a good taste” (thank goodness for that!) but when experts looked at the photos suspicions arose over the label and cork. The hotel in St Moritz, which stocks over 2,000 rare whiskies, has since reimbursed him in full, and instigated the investigation to ensure the authenticity of its stocks.

My first reaction on reading this story was ‘why on earth would anyone pay more for a single shot of whisky than a new car?’ Mr Zhang is clearly rich beyond most of our wildest dreams, but for the same money he could have bought a Dacia Sandero. Not convinced by the car? Still tempted by the whisky? Well how about 200 new bottles of Macallan?

This is a problem I have often grappled with. Is a £20 bottle of wine really twice as good as a £10 bottle of wine? Do you get twice as much enjoyment? And why do I get excited in the supermarket when a can of beans is 10p cheaper, but when purchasing a house I would never consider negotiating the price down to the last 10p?

Strangely, the more I’ve thought about it the more I understand Mr Zhang’s choice (whilst still thinking of thousands of things I’d prefer to do with the money). If I was him, I may well desire a ludicrously expensive whisky more than a Dacia Sandero.

I tend to view life as the collection of a series of fantastic experiences. Yes, I could ride my bike from my front door wearing a pair of virtual reality goggles that show an island paradise around me, but despite it being a lot cheaper, it would not be as good as riding a bike with my family around the majestic Lord Howe Island off the east coast of Australia (damn, the cat is out of the bag now).

When I think about how much that trip of a lifetime cost, even now many years on, I still have to go and have a lie down in a darkened room. Yet I am sure it will remain a treasured memory for the rest of my life and it was utterly worth every penny.

The concept of utility is described in Economics as “the satisfaction experienced by a consumer from a good or service”. Thus, it cannot be measured in purely monetary terms (which therefore makes it fiendishly difficult to measure accurately – something which would upset a mathematican but makes economists rather smug) and explains why we would happily spend £20 on a bottle of wine in a nice restaurant (because it is part of the experience of dining out) whilst we would shy away from that shelf in the supermarket.

Put it another way, the “paradox of water and diamonds” (usually most commonly associated with Adam Smith) is the apparent contradiction that water possesses a value far lower than diamonds, even though water is far more vital to a human being.

Note that the utility of something can change depending on the individual and the situation. For example, if you were in that fancy restaurant and they wanted to trade your diamond ring for a jug of tap water you would quite rightly tell them to shove off, but if you were in the desert dying of thirst you would probably do it.

If you are asking what all this academic guff is doing on a horse racing blog (he said, flailing around for a reason and generally buying time) it is because utility theory dictates your attitude to risk.

When I bet at home with my online bookmaker I am usually looking for spectacular returns. If I bet £10 on a 10/1 shot and it wins, the £100 is a nice bonus (especially just before Christmas) but it is unlikely to materially change the course of my life. It is more likely that it would just sit in my account and wait for the inevitable losses to follow, merely delaying the time when I have to top up again.

But there are two key situations in which a winning £10 bet would have a very different outcome on my utility derived. Firstly, if I was at the races with friends, a £100 win would allow me to jump up and down like a lunatic, get the drinks in, and generally feel the elation of being a winner in company.

Secondly, if I were to put four horses at 10/1 in a £10 accumulator, the £146,400 I would win would certainly change my life. This, of course, is why the lottery is such an attractive proposition even though it is far worse for average returns than the horses, football or even roulette. In terms of utility, I would argue that a £100,000 win on the horses or lottery gives more utility that 1,000 wins of £100 spread out over a lifetime of gambling.

So actually, Mr Zhang you rich fool, I salute you for seeking out the true richness that life has to offer. I still wouldn’t spend one thousandth of that sum on a dram of whisky however good it was (or in this case, wasn’t) but I can understand why you might.

Is it morally repugnant to do such a thing when there is so much misery in the world that £7,600 could help solve? Possibly. But as a wise man once said, you can’t take it with you, and when you are on your deathbed you are more likely to remember those exquisite, joyous experiences in life than regret the money you spent on them.

Just make sure you get what you pay for.