Wednesday, September 12, 2007

Tipping

Why do we tip waiters, taxi drivers, and others? Why is tipping a common custom in some societies but not in others?

The obvious economic explanation is that tipping provides a way in which the customer's information on quality of service can be used to reward good service and penalize poor. That explains why tipping is not limited to unusually good service; if the tip for average service is zero, the customer cannot reduce it further to punish unusually poor service.

This explains why we should tip but not why we do. A regular customer at a restaurant may regard the benefit as a private good, an incentive not to provide good service but to provide good service to him. But that does not apply to the passenger in a taxi, who is unlikely to ever see the driver again, or to the traveler who eats at a different restaurant every night. Yet they too tip.

Looking at the practice from the perspective of tipper rather than tippee suggests a different sort of explanation. By tipping we demonstrate, to ourselves and others, our willingness to adhere to social norms, even at some cost. And at the same time we get the pleasure of generosity.

Not only do we get to be generous, we get, in an odd sense, to be generous for free. If tipping were not customary restaurants would have to pay their waiters more. Instead of paying $11.50 for dinner in a world without tipping I pay $10 plus a $1.50 tip. I could stiff the waiter and save $1.50, so not doing so lets me feel both honest and generous, but on average my dinner costs me no more than it would if tipping were not customary.

This may explain why tipping is less common in Europe. Europeans, judging at least by my casual observation, are more concerned than Americans with issues of class and status. What an American sees as an opportunity to demonstrate his honesty and generosity, a European may see as a way of claiming superior status--the diner playing the role of the aristocrat tossing crusts to starving peasants. I think that fits the tone of some exchanges on the subject I have seen online between Europeans and Americans.

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39 Comments:

At 12:26 AM, September 13, 2007, Anonymous Simon Andersson said...

I think you may be too kind to us Europeans... perhaps we are just cheaper :)

Seriously, there is among Americans a spirit of voluntary cooperation and a feeling that if I'm seen being kind to others, then others will be kind to me. I think this mindset is less well developed in other tribes.

 
At 12:33 AM, September 13, 2007, Blogger John said...

Tipping waiters and waitresses is somewhat different from tipping everyone else because they don't even make minimum wage (at least in Chicago). Despite that fact, servers typically have to "tip out" to their bussers (sp?), usually a mandatory 5% of what they sold for the night. So if you don't tip a waitress at least 5%, she's losing money on your table.

I'm not sure how the waiter loophole to the minimum wage arose, but I know it to be true because I live with a waitress and I am friends with many in the serving industry in Chicago.

 
At 12:42 AM, September 13, 2007, Blogger Olivier said...

Ok, bear me with me but this is the point of view of a french 22-year old. So it might biased of course.
I don't think that for most people in Europe (generalising, of course) tipping is an issue of status affirmation.

It might be playing with the old stereotype, but usually, people in the food service industry (including every kind of venue, not just your not that average at all 3 michelin star restaurant) don't have the same attitude in the way the provide service.

I'll explain. I'm sure Northern American waiters have similar self-respect than european ones, but wait my experience tells me (I've travelled a few times to canada and the US) is that american waiters pay more attention to the their behavior towards customers.

Of course not all french waiters are asses as one might suspect, but the average waiter in France doesn't seem to me as nice and dedicated to his customers as the average waiter in the US.

This is really tricky because this only relies on point of view, and usually when you're away from your country your mood is quite different and your expectations as well.

Now why isn't tipping customary in France for example. We'll this is only the conclusion that I've come to, but usually the tip is included in the check is the US if I'm not mistaken, something between 10 and 15 percent of the total actual price of the meal. Something you will never see in France, where the tipping depends entirelly on the customers' opinion of the service he received, we do not have "standard tipping" per se.

The only thing that comes to mind is that not to come off as cheap when you try to leave only a half, one and two euro coins. Small change for some is seen as just emptying their pockets perhaps, and not really tipping as should be.

And the average tip I can't be certain, I live in Paris and usually the tip isn't a percentage of the price of meal, it's generally something like 2 or 3 euros, more depending on both the mood of tipper and how much he liked the waiter.

So that was long, but I was sad to see your usually very insightful and detailed analyses of every day life take a turn toward approximation when talking about another continent. I'd sure like to the read the opinion of other europeans on this.

And usual, you're a great read, I can't wait for your new book to come out.

 
At 12:43 AM, September 13, 2007, Anonymous Thomas Themel said...

Tipping a taxi driver has a network effect. It signals my satisfaction with the taxi driver's performance, thus giving the taxi driver a chance to optimize. Practiced widely enough, tipping makes your average trip more pleasant.

Re: Europeans - apparently true, though I never thought about it until I read about Orwell's Catalonia where tips were outlawed. To me, showing someone how superior I am by giving them free money is a kind of spurious insult.

Still, aiming for 10% with a service adjustment sometimes gets me disapproval from co-diners here, though I suppose this is more about driving up the price of good service (or pretending that I'm better off than the other guests) than about social consideration for the poor service person.

 
At 12:55 AM, September 13, 2007, Blogger Olivier said...

I left out some important things out of my commentary, one being that I think french waiters are more concerned about the quality of the way they serve food (my brother attented a "school of restauration"). So it's more about how you wine serving looks (letting a drop fall off the bottle when you fill a glass, baaad), how you don't mix the orders, how much you know about that type of new meal, or special, and that certain type of wine I'm not sure about.

This counts more, I think, to a restaurant owner in France, than a friendly service for a american one.

But as simon andersson said, even though I don't share his cooperation theory.
I think some studies have show - but I couldn't quote them so that doesn't count - that the average american is more generous than the average french or european. This very well could be related to societal behavior, but I'd say it's almost as much related to income and icome taxes. Wether or not this applies to the way people tip is a stretch. But the "money giving" behavior has to be related in some way.

 
At 3:34 AM, September 13, 2007, Blogger Tim Worstall said...

One minor point. Tipping is tax efficient. Tips (in the US and UK, at least, the only two countries I've been a waiter in) attract income tax but not FICA (or National Insurance for the UK).
It's also true that if there is a sales tax (and very much so with VAT in the UK) then the higher price of the food sans tipping will be even higher.
So the insitution of tipping leads to higher incomes for the staff and possibly a lower price to the consumer: at the expense of the tax wedge, of couse.

 
At 6:13 AM, September 13, 2007, Anonymous Mana said...

I agree with tim's comment that in modern economies there is a certain market dynamic to tipping. Historically tipping was a system of gift giving or bribing that some say originated in the east. Baksheesh, was charitable giving (like to a beggar) an offer to gods or a bribe. That's why in certain countries (Eastern Europe, middle east, and asia) leaving baksheesh is not appropriate in many circumstances.

Cultural aspects aside, I have to wonder why tipping applies mostly in the service industry (John may be right about tipping those who may loose or not make enough money otherwise). So, why don't we tip our favorite grocery store clerk? Or why not tip the mail-man for all the times he had to worry about my dog in the front yard?

 
At 6:41 AM, September 13, 2007, Blogger Alvaro Augusto de Almeida said...

In Brazil, believe or not, tips for waiters are included in the bill! This is legally required by the unions. But we usually don't tip taxi drivers, although we tip "car watchers". In this last case, the reason and the message are very clear: if you don't, next time you're gonna find a big scratch in the painting.

[ ]s

Alvaro Augusto
http://www.alvaroaugusto.com.br

 
At 6:53 AM, September 13, 2007, Anonymous Arthur B. said...

I have no idea where I read this so I may sound stupid by offering you your own puzzle:

A man goes to a restaurant out of town, he knows he will never come back here, he knows he will never see the waitress anymore.

On a first glance he has no personal interest in tipping at the end, he will get the same quality of service no matter what.

The lower price of the meal is a sunk profit to him, choosing to pay a tip will still cost more to him so he can't be generous for free.

Of course he might feel compelled want to produce the public good created by the institution of tipping, he might feel that he his bound by an implicit contract with the waitress or he might want to be generous.

Here's when the puzzle get tougher:

The man is offered 1$ by his friend to leave the tip on the table of a customer that just left. After all the waitress will get the money.

I doubt anyone would agree to do that. I think this rules out the generosity explanation. I see two possible reasons for it

- He doesn't want the waitress to think poorly of him (which is strangely both understandable and completely irrational)

- He assumes the implicit contract states that he must leave the money specifically on his table and therefore that he breaches his contract by not doing so (not very convincing)

- He thinks that the public good might collapse because the waitress will get the wrong signals, she might have given a poor service to the other table and a good to this one.

I do as a general rule much prefer service in the US than in Europe but it might be coincidental. I have never been insulted by a waiter in the US, it happened to me quite a few times in France.

 
At 8:29 AM, September 13, 2007, Anonymous sportember said...

Europe seems much more divergent in cultures than the U.S. Here, in Hungary, it is perfectly cusomary to pay 10% tip to waiters and taxi drivers. If the service was good, and you don't tip, it's a shame on you. If the service was bad, and you don't tip, it's a shame on the serviceman. If you pay 20% tip, that makes you superior, but also makes the service superior, so it's appreciated.

 
At 10:50 AM, September 13, 2007, Blogger Gil said...

Whenever this subject comes up, I always think of this scene from Reservior Dogs.

I'm not sure what the complete explanation is, but it would be nice if we could harness the same effects to help provide voluntary funding for the government functions that people believe are legitimate and important.

 
At 10:16 PM, September 13, 2007, Anonymous Anonymous said...

"Tipping is tax efficient. Tips (in the US and UK, at least, the only two countries I've been a waiter in) attract income tax but not FICA (or National Insurance for the UK)."

You're wrong about the US at least - tips are fully taxable. Presumably compliance is, however, lower than for regular income.

 
At 10:30 PM, September 13, 2007, Anonymous Rex Little said...

A big Amen to what Gil said. If people came to feel the same obligation to pay for, say, national defense that they do for restaurant service, a vexing libertarian problem would be solved.

All the explanations given here of the economic effects of tipping miss the point. Whatever tangible benefits I derive from the institution of tipping occur because other people tip; I lose none of them if I fail to do so. (The obvious exception is any service I get regularly from the same provider.) Yet I do tip, even at places I'll never visit again in my life. Why? Because I've been educated by our culture to feel bad about myself if I don't. The challenge is to figure out exactly how that education took place and how to apply it to government functions in such a way as to make taxation unnecessary.

 
At 11:28 PM, September 13, 2007, Blogger Jonathan said...

This comment has been removed by the author.

 
At 12:03 AM, September 14, 2007, Blogger Jonathan said...

This comment has been removed by the author.

 
At 12:05 AM, September 14, 2007, Blogger MensaRefugee said...

Tipping makes my blood boil...

They didnt earn it, they shouldnt get it. Maybe a parallel with that is call runaway selection in evolutionary biology is at work here - once tipping starts, its hard to eradicate - even if people dont like it.

 
At 12:14 AM, September 14, 2007, Blogger Jonathan said...

This comment has been removed by the author.

 
At 3:54 AM, September 14, 2007, Blogger Jonathan said...

To answer your question, I tip in order to avoid giving offence and to avoid seeming stingy. I therefore tip whatever I think is the customary amount.

The quality of service in restaurants is normally adequate and I make no attempt to assess it.

I prefer restaurants with a standard service charge and a no-tipping rule (there are some restaurants like this in England). Because then I can pay the going rate without needing to guess what it is.

I think the custom of tipping is archaic and an embarrassing nuisance; I wish it would die out completely.

I'm English; I've lived in various European countries.

 
At 5:17 AM, September 14, 2007, Blogger Jonathan said...

In a restaurant, the chef's job is more important and requires more skill than the waiter's. But we tip the waiter and not the chef -- obviously, because it's easier in practice to tip the waiter than to tip the chef.

However, if the chef can do a good job without any tips, the waiter should be able to do likewise.

Tipping is an ingrained social custom lacking in utility. If it didn't exist, there would be no need to invent it.

Here in Catalonia, the normal level of restaurant tipping is much lower than in England. However, the average quality of service seems, if anything, slightly better here.

 
At 8:54 AM, September 14, 2007, Anonymous Anonymous said...

Any discussion of tipping must address the question of groups of people who tend to tip much less, or not at all.

 
At 10:04 PM, September 14, 2007, Blogger MensaRefugee said...

Maybe Microsoft Surface will help tipping die a well deserved death.

 
At 12:31 AM, September 15, 2007, Blogger Synova said...

A long time ago when I used to shop at the commissary the baggers would fill your cart, take it to your car, and load up your car for you.

They weren't paid by the Air Force.

At all.

They were paid with tips.

I had understood that wait staff and porters and others used to operate similarly and that the tip was their entire pay and that tipping is held over from that.

 
At 5:27 AM, September 15, 2007, Anonymous simon andersson said...

Conjecture 1: An individual who can choose between joining a group of big tippers and one of non-tippers or small tippers will prefer joining the big tippers.

Conjecture 2: A group that can choose, all else equal, between admitting a person that tips big or admitting one that doesn't, will admit the big tipper.

If tipping is efficient and good for the group, conjecture (1) is likely to be true.

We could model tipping behavior as a game where players (whose recent tipping history is known to other players) form groups. In each round, players can leave any group they are part of or join any group that will admit them. If the conjectures above are true, then groups of big tippers will grow and generous tipping behavior will spread.

What accounts for the difference between North American tipping and European lack of it may be the fact that Americans move around more, change jobs more often, and generally change their set of acquaintances more frequently than do Europeans. So in our model, Americans do more iterations of the "association game". This explains more than tipping, by the way. Americans are friendly, constructive and generous with compliments, because in America, it is good to be the kind of person that others want on their team.

 
At 5:50 AM, September 15, 2007, Anonymous simon andersson said...

A friend who had worked a lot in restaurants said: "Trust the recommendations of the wait staff. They don't care if they make the kitchen staff work harder. They just want you to be happy so you'll tip more."

This suggests tipping is efficient because it promotes transparency and efficient use of information.

 
At 10:22 AM, September 15, 2007, Anonymous simon andersson said...

Alarming news for those of you who dislike tipping: the habit may be spreading.

http://www.usatoday.com/travel/news/2007-09-10-tipping-abroad_N.htm?csp=34

I don't know what the moral is. If tipping is contagious, that's equally consistent with the "tipping habits spread because they are productive" theory and the "tipping is a counter-productive evolutionary arms race" theory.

 
At 12:03 PM, September 15, 2007, Blogger Jonathan said...

Simon Andersson: "Americans move around more, change jobs more often, and generally change their set of acquaintances more frequently than do Europeans."

Heavens above. I've worked in seven different countries as an adult. Before that, I lived in at least six other countries with my parents.

Plenty of Americans, I think, never set foot outside their own country.

I don't see what this has to do with tipping.

Nor does tipping have anything to do with friendliness or being a team player. It's just a useless habit that people have got into.

If you're so friendly, do you dash into the kitchen after a meal and tip the chef? Do you tip the person who sells you cheese in the supermarket? Do you tip your accountant, your lawyer, your doctor, your child's teacher, all the other people who perform services for you? If not, why not?

It's funny how people insist on providing rational-sounding explanations for the things that they do, even when it boils down to just following social custom.

 
At 12:43 PM, September 15, 2007, Blogger Mike Huben said...

So far there seem to be at least three factors being left out.

1. The waitperson knows if it is a new customer, and must decide whether to risk extending good service.

2. Extending good service to a new customer in hope of a good tip is a form of gambling, which tends to be addictive.

3. Reputation of a restaurant is strongly affected by wait service: somebody who stiffs a waitron might still praise the restaurant for its service.

I suppose the big point is that when there are many possible interpretations of the interaction, ignoring some that are significant would put you on the wrong track. Unless you test which are significant in the real world, you cannot know ahead of time.

 
At 1:41 PM, September 15, 2007, Blogger Jonathan said...

Mike Huben: "The waitperson ... must decide whether to risk extending good service."

In principle, yes, but is doing your job competently such a risk? I don't sit down and assess how competently I'm going to do my job today, I just get on with it every day as best I can. I imagine that most waiters do the same.

To be sure, they probably provide a somewhat enhanced service to regular customers they know well; maybe that's what you meant, although you expressed it the other way around.

 
At 8:49 AM, September 16, 2007, Blogger Daniel A. Nagy said...

Here are my observations:
As sportember has already noted, tipping customs in Hungary are remarkably similar to those in North America (I've lived in the US, in Canada and in Hungary as well), with one exception:
In America, one pays for the meal, the waiter brings back exact change and then the customer is free leave as much as s/he wants in the folder.
In Hungary, all you leave in the folder above the price of the meal is assumed to be the waiter's tip, unless explicitly stated otherwise (e.g. "please give me change for X", where X is the price of the meal plus tip). Taxi drivers are paid and tipped much the same way in Hungary as they are in North America.

Taxi paying habits are very interesting in the former Soviet Union. There, you agree on the price in advance and pay it upon arrival. In Central Asia (with the notable exception of Kazakhstan, probably because its high proportion of population of European origin), the process of agreeing on the price involves haggling; in the rest of the former Union, it is take-it-or-leave-it. Paying more than the agreed-upon price happens when the service is unusually good.

 
At 9:15 AM, September 16, 2007, Anonymous Anonymous said...

Interesting, i was just wondering about this yesterday.

Normally, i dont tip at all. Im dutch and im a student, so thats enough justification for me. Except perhaps if ive gotten more service than i would have expected.

But i just arrived in the states, and i went out eating with an american. He got the bill and was like: (X + tip) / 2 = Y, and i simply wasnt going to argue with that. Pure conformance, and fear of reputation, especially because im in a different culture that i dont know very well yet.

I suspect its largely a show of generosity, not so much aimed at the person providing the service, but moreso at those around you, whos opinion youre more likely to care about. It would be interesting in that respect to compare tipping behavior based on group size / composition.

 
At 5:08 AM, September 18, 2007, Blogger mlesich said...

Ok, but then how would that explain the fact that in Australia, tipping isn't as wide spread. Maybe the theory is incomplete

 
At 2:38 AM, September 19, 2007, Anonymous Stevo Darkly said...

If the tipper is male and the waitress is a hot female, the tipper has an incentive to not only tip but tip generously, in the expectation that as a reward, sometime prior to his departure the waitress will offer to give him her phone number and perform various sexual favors because he slipped her an extra dollar or three.

This has never actually happened, but somehow it continues to motivate much of my tipping anyway.

 
At 2:32 PM, September 19, 2007, Blogger John T. said...

"Not only do we get to be generous, we get, in an odd sense, to be generous for free. If tipping were not customary..."

Tipping will be customary or not regardless of whether you tip as an individual. Thus it's not free.

You have countless opportunities to be generous to the cashier in the grocery store, but you hardly ever tip her.

People mostly tip so others won't think ill of them, which can be a reasonable choice in some circumstances. They get conditioned to doing it without much thought and proceed to do it in cases which offer no reasonable return.

 
At 2:54 PM, September 23, 2007, Blogger Murnablogs: said...

"By tipping we demonstrate, to ourselves and others, our willingness to adhere to social norms, even at some cost"


I am usually cynical of certain demands imposed on individuals by way of norms and the likes.

I don't tip, and I think compulsory tipping is disgusting.

If you think your service should cost me more, go ahead and charge me, but I won't tip.

 
At 7:14 PM, October 08, 2007, Anonymous Tiger shark said...

Perhaps another way to investigate the question is why restaurant owners in different countries/cultures don't change the compensation contact with the waiting staff. Despite of the lack of mandatory requirements on a standard compensation contact, few restaurants deviate from the norm.

Is it because it is too costly to change it? If so, why?

 
At 7:03 AM, October 09, 2007, Anonymous edgr said...

Being Australian, I find the concept of a 'service charge' or a mandatory tip included in the bill a bit strange.

Here, the cost of service is just included in the price of the food. My experience is that if you happen to receive particularly good service, or you like your waiter, then you might leave a tip but it's not considered strange or offensive here to pay the bill exactly.

It does seem, though, that the classier the restaurant, the more likely tipping is the norm. I suppose this has something to do with not tipping in other industries - at the bottom of the food heirarchy is fast-food restaurants, where you're obviously not going to tip. The transaction there is much more like a supermarket than is the transaction at a classy restaurant, and there's something of a continuum.

 
At 1:52 PM, July 05, 2008, Anonymous Anonymous said...

Just my experience in my worldly travels but.... it is true in the US wait staff make 0 to 2.30 hourly wage, and in a good establishment sometimes even PAY! In many countries that I personally have been to the wait staff make a much higher wage, therefore I have been told by locals tipping is not typical. Maybe they were just snowing me but that is sensible. I did have a Scottsman tell me how annoyed he was that Americans had a tipping policy, when I told him the avg wage for wait staff he was shocked and it changed his viewpoint. Bottomline, American waiters are nicer because those tips are their living...

 
At 10:42 AM, February 01, 2010, Anonymous Anonymous said...

Although tipping may make one feel generous, but does everyone makes one more greedy?
For instance, there are many retaurants seems to ask for tips even from customers who order a take out. There is no services from the waiters or waitresses. There are some shops, i.e., only selling pastries (for take out) and no services provided. But at the counter, there is a small glass asking for tips.

What does tipping means now? No services provided at all but expecting tips. So, should a customer simply hands out his/her hard earn "tips" just to feel generous. It's getting out of hand.

There should be a line draw, when to tip and what condition should customers tip.

 
At 1:54 PM, August 24, 2013, Anonymous Anonymous said...

in Germany and Austria the tip is included in the bill,like 15 or 20% the customer can then leave a tip for GOOD sevice if he or she wants to.the servers are paid a decent salary this way.also I might add the dinner is still cheaper that way compared with the US.the system here stinks,do not know of a better way to put it!!if they did it this way in the US ,less people would eat out or the greedy restaurant owners would HAVE to lower the price of meals!they should be forced to pay at least minimum salaries with the US system to stop this madness with the tipping.more and more is expected each year when you eat out!it is demeaning to the server and the custmers!!

 

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