The Economics of Tipping
Why Do We Tip?
Tipping is a voluntary payment for service, which economists find puzzling because it happens after the service is received and often to people we will never see again.
A tip is an extra payment beyond the price, given to someone who provides a service. Unlike a price, it’s not legally required, yet most people pay it.
The puzzle
If people were purely self-interested, they’d never tip a stranger after service is done.
Explanations
Social norms, fairness, guilt, gratitude and fear of judgment.
Where
Common in restaurants, taxis, hotels and salons, and increasingly in apps.
A last-night stay
A traveller leaves a tip for a hotel housekeeper she'll never meet again.
Assuming tips are only about service quality
Research shows the link is weak.
Key takeaways
- Tips are voluntary payments.
- Self-interest doesn't explain them.
- Norms and fairness matter.
- They're common in many services.
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