Many drivers on platforms like Uber do the job as a side hustle on top of studying or another job. The flexible nature of driving is often ideal to fit around other things in life. Given the huge number of drivers, especially in a large city, the chances of getting the same driver twice is pretty low, and yet many passengers still choose to tip their driver, despite it probably having no impact on the future service they receive.
Research from Stanford’s Graduate School of Business explores the social norms around tipping in a bid to understand the economic value wrapped up in tipping. The researcher used credit card data to explore over a billion taxi trips in New York City. This allowed them to understand how far passengers traveled and how much they tipped each year.
The analysis revealed that an incredible 97% of customers left a tip, with the “social norm” averaging the tip to be around 20% of the overall fare. Most tips were paid by a touchscreen payment device inside the cab, and the screen would provide passengers with a menu of tip options, including 20%, 25%, and 30%, while also providing an option to pay no tip.
The data revealed that approximately 60% of people gave a tip from the menu of options, which the researchers believe indicates the desire not to have to figure out the socially acceptable amount in their heads. The most popular option was 20%, especially when the journey and the fare were relatively small, but people veered away from this when the fare went up as it then became more worthwhile to actually do the calculation. What’s more, nearly all of those who skipped the menu options tipped less than 20%.
Psychological costs
While there are obviously financial costs involved in tipping, there are also psychological costs involved in either not tipping at all or only leaving a small tip.
“You have something in your mind that you think is the norm or the right thing to do. And deviating from that results in a feeling like shame or guilt. And so I call that a norm-deviation cost,” the researcher says.
This cost tends to increase the more people stray from the social norm, which leads people to do mental calculations of how much they might save by bucking versus adhering to the norm. The average cost of not sticking to the menu suggestions and calculating our own tip is around 90 cents, the researcher suggests.
“It’s the cognitive cost of you doing your own exercise,” they say. “People would rather avoid computing 17% of $13.75 and would rather pay $1 to avoid that situation.”
The findings demonstrate the value of giving people clear options for tipping so that they aren’t forced to calculate the social norms themselves. Not only could this result in higher tips for drivers, but it could even make passengers happier. Indeed, the researcher argues that such a tip menu would increase driver and rider welfare by over $200,000 per day.
