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Tuesday, January 28, 2014

The Behavioral Economics of Tipping

Myanna's post about Uber got me thinking about a recent trip to New York City.  New York City was the first city in which I took the occasional cab.  I went to college and to law school there.  When I was in college, some kindly relative told me that cabbies should get a 10% tip, and I have lived by that ever since.  Turns out my kindly relative was a cheapskate. 

As this article from The New York Times from about a year ago indicates, as early as 1947, cabbies expected at least 12½%, and until recently average tips exceeded 20%.  Tips have come down as fares have gone up, and as of a year ago they averaged just over 15%.   

New York City cabs are now equipped with credit card readers that offer riders the option to leave a tip.  The reader will automatically add a tip, and it gives riders the option of tipping 15%, 20% or 25%.  Behavioral economics suggests that most people will choose the middle one, and so it seems that the aim of the screen is to get cabbies' tips back up to where they were before the fares increased.  When I saw these three options, I felt oppressed and manipulated, since I was still operating on the assumption that 10% is what is expected.  Now I feel guilty that I did not tip more reasonably.  In my own defense, I didn't save myself any money, since the my law school reimbursed me for my travel expenses on that trip.  So you see, I wasn't being cheap; I was being a responsible steward of my law school's resources.  But no more stingy tips for me. 

I am a work in progress.  I was as astonished as was Jerry Seinfeld (the character) to learn that chambermaids expect $5 a night (see the scene below, starting about 1:40 in).  

 

Ann Landers is an even bigger cheapsake than my relative.  Before we saw this, I would tip $2 a night, and I still think $5 a night is rather high.  After all, Jerry Seinfeld (the character) is an experienced traveler, and he seems pretty free with his money.  If he gives $1, $2 seems okay.  But my wife and daughter agree with the suspected serial killer.  Five dollars it is.  It would have been interesting to see if chambermaids noticed an increase in generosity following the airing of this episode.  And I wonder if they now wish that cable channels would stop showing Seinfeld reruns.  The episode is now at least fifteen years old, so if $5 a night was a good tip then, one should expect $10 /a night now. 

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