• What’s Tipping About?

    I cannot recall a single time I did not tip at a restaurant or other common tipping situation, and I doubt I ever won’t tip. Nevertheless, it is fun (for me) to ponder why. While there may be an expectation of tipping there is no obligation to do so. So why tip?

    Homo economicus would ask, what’s in it for me? In transactions that are likely to be repeated (dining at a local restaurant, getting a hair cut from your favorite barber) there may be, and likely is, an implied contract: you trade decent tips for decent service.

    What happens when the service isn’t decent? If you reduce your tip is it a clear signal to the service provider that he or she did a lousy job? Will it be interpreted that way? Or is the service provider oblivious to his or her quality and likely to think you a cheapskate? One could imagine a downward spiral of poorer and poorer service in exchange for lower and lower tips. In such “games” of repeated interaction it may be rational to keep up your end of “the bargain” even if the other side seems to shirk a little now and then.

    But what of one-shot interactions? Suppose you’re on a business trip, eating out (let’s say alone) at one of a thousand restaurants in a large city you’re not likely to visit often. If the waiter’s service is obviously poor, perhaps atrocious, what is compelling you to tip? Homo economicus would not, even if the service was fair. After all, what are the chances you’ll be remembered by this server in this restaurant in this city in X years when you might return (though probably won’t)?

    Yet I would still tip, perhaps more than I should. I cannot see how this is rational. It is a behavioral response to a common circumstance. For the idea of what I could or should do in this particular situation I am substituting the idea of what one normally does. Almost without thinking I will leave a tip. In fact, I may feel virtuous for having done so even though the service was lousy. Maybe if I don’t tip I would later feel bad about it.

    But if I expect I will feel better about myself in the future if I tip now than if I do not, even for bad service, then maybe tipping is rational–not economically but emotionally. That is, if my utility function includes my expectation of my future self esteem then tipping is rational.

    There is one major aspect of tipping missing from my experience. I’m never on the receiving end. I’m not in a line of work for which tipping is customary. Does anybody tip for a good day at the office, for a clever analysis of Medicare, for a good conference presentation, or for a thoughtful blog post? I rather doubt it. It would be strange. But why?

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    • I think you hit the nail on the head with utility value.. it makes us feel good. Knowing that the base pay for most people in the service industry is horribly low, we understand that these people are depending on us for a sustainable wage and therefore, if we perceive the person as friendly, we’d like to help them out (maybe in a karmic sense, we treat others the way we’d like to be treated). So, we tip because the financial cost is outweighed by our self-satisfaction.

      That being said, I recall one time that I did not tip. It was at a restaurant, the food was horrible, late, and not what I ordered, and the server was wholly unpleasant. Do I feel bad? No, I do not; I did not like this person, so I did not see any reward in “helping out” someone who I did not feel deserved it.

      Regarding your last point: My wife works in the parts department of a motorcycle shop as a salaried employee. Every once in a while her supervisor will give her a “tip” of 20 to 100 dollars if they have had a very busy (and profitable) day. This provides a great incentive towards loyalty and overall employee happiness; perhaps the money is even less important than the sense of appreciation (“it’s the thought that counts”).

      Performance-based rewards are effective and fair, when given appropriately. This is part of why the lower- and middle-classes are so angry about executive bonuses, which I believe can be perceived as “tips”, since they are (or should be) separate from a base salary.

    • I don’t tip frequently if the service is bad, or sometimes I only leave a $1 tip. I live in a large city with many restaurants, but even at the restaurants I frequent, if the service is poor I will not tip the waiter. I tend to go along with Kant’s Categorical Imperative in this case (http://en.wikipedia.org/wiki/Categorical_imperative) — if everyone tips poor service poorly, then eventually the waiter will realize that he is not making enough money and will be forced to find another job. Perhaps this makes me cheap, or a jerk, but I don’t get a lot of utility from warm fuzzies, so I think it makes me perfectly rational.

      One time I even went so far as timing how long it took between the time my glass went empty and the time it was refilled, starting with a 15% tip and ticking off one basis point per second. I think maybe I also had a 100 basis point penalty for missing parts of our order or something like that. But I know the final tip was about 4%.