Weekly Updates
Weekly Updates
- Visitors to the United States are immediately confronted with an aggressive tipping culture. When paying for most personal services—e.g., taxis, restaurant meals, etc.—a tip is expected and often prompted. The rise of digital payment platforms is giving greater control over tips to the seller.
- Paying digitally, customers are often nudged to tip with three “suggested” tip amounts. This triggers two behavioural economic responses. There is herd mentality, whereby people think, “If everyone else is tipping, I should too.” More people tip when paying digitally. There is also a middle option bias, where if presented with choices, consumers will tend to avoid extremes and choose the middle option.
- So if the suggested tips are 10%, 15%, and 20%, customers will more likely tip 15%. But if the suggestions switch to 15%, 20%, and 25%, customers are then more likely to tip 20%, which is effectively a 5% cost increase. Critically, there has not been a 5% price increase, and voluntary gratuities are not included in inflation.
- There is evidence that suggested tip ranges may indeed have risen, creating a hidden inflation. However, companies that try paying their staff a fair wage by raising prices and banning tips find that customers are unhappy. People simply prefer the deception of a lower price and a rising gratuity.
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