Tipping culture: discussing consumer psychology and fairness

I'm purchasing an office chair online and they're asking me if

I want to leave a tip,

25 2018% tip for what tipping culture has

gone way too far.

Nowadays,

you're asked for a tip nearly everywhere.

Are we tipping at drivers?

15 20% on a sweatshirt purchase.

If you're frustrated,

you're not alone a survey by bankrate.

Found that a third of people are annoyed by those pre entered tip screens and think tipping

culture has gotten out of control.

Businesses in cities have tried to move away from tipping,

but I don't see any kind of a future where tipping completely goes

away.

That's Mike Lynn,

a Cornell psychologist who studies consumer behavior.

I've done more research on tipping than anybody else and he'll help us explain why the US

became so dependent on tipping.

Why it seems to be everywhere now and why we're probably not getting rid of it.

Tipping really became popular after the civil war.

When formerly enslaved black Americans went into service positions like waiters and railroad

porters and the railroad industry deliberately paid them low wages on account of their

ability to work for tips.

And arguably it was this influx of service workers who were receiving low

wages that contributed to the growth of tipping by the early 19 hundreds.

As minimum wages were being established,

tipped workers were initially excluded until 1966.

When tipped workers were given their own minimum wage,

it was raised to $2.13 in 1991 where it stayed ever

since.

Consumers in this country are aware that servers make a substandard minimum

wage and that,

that contributes to their willingness and desire to tip them.

Some states require employers to pay just that tipped minimum wage to workers where some

states like California and Minnesota require them to pay workers the full minimum wage

and then tips are added on to that.

And those minimum wages affect how people tip.

I was able to get data from uh credit card payment system

providers uh on charge sales and charge tips in restaurants

across states.

And what I find is the smaller the wages,

servers are paid the higher the percentage tip.

In other words,

he found that people know their tips are how workers get paid.

So they tip more when they know workers are being paid less.

In that same bank rate survey,

41% of people said businesses should pay their employees better rather than relying so

much on tips.

But in practice,

people don't like that.

I've done the research where I give people hypothetical menus,

one where they have regular prices.

And at the bottom,

it says a customary tip of 15 to 20% is appreciated.

One where they say tipping is not allowed,

you can't tip but their menu prices are 15% higher.

He then asked people how expensive they thought the restaurant was.

People overwhelmingly thought the menu with the 15% higher prices was more

expensive than a menu where they would tip 15% or more.

Anyway,

other menus that stated in 18 or 15% gratuity would be automatically added were

also viewed as more expensive.

We're not rational,

we're cognitive misers.

We don't like to add all of the factors together and make logical

rational comparisons.

We do quick and dirty heuristics.

It's called price partitioning.

You see it with hotel listings or concert tickets with all kinds of fees tacked on at the

end.

Partitioning prices often makes things seem less expensive than if you were

to build all of the cost and be upfront in one big price,

which is one of the reasons you're seeing tipping just about everywhere.

Now,

post COVID,

we've experienced inflation and full employment

and service establishments have to compete for

employees which means paying them more,

but paying them more requires them to raise prices and customers are already facing

inflation.

And and so what's a business to do?

And I think that tipping is a way to address that problem,

a good faith effort on the part of,

of businesses to say I need to pay my employees more,

but I don't want to raise my prices too much on you guys.

So,

are people really tipping 20% for self-service or counter service?

According to that bank rate study,

the vast majority of people are still always tipping servers or wait staff at a sit down

restaurant from what we've learned from Dr Lin studies.

Probably in part because they know those workers depend on tip.

But when getting coffee,

not as many,

when picking up,

take out even fewer.

So just because someone's asking for a tip doesn't mean it's customary doesn't mean everyone else

is giving the new technology kind of hides from us.

What the actual behavioral norms are tipping was seen as

un-american even in the 18 hundreds,

in the 19 hundreds.

Polls showed Americans wanting to get rid of tipping today.

Two thirds of Americans have a negative view of tipping,

but it's so ingrained into American price models and policies that tipping is

probably here to stay.

But where and how much you tip is still up to you.