Before you pay for your next taxi cab ride with a credit card, pay attention to the tipping options that are presented to you. The menu of tipping options could be designed to solicit higher tip amounts.
A working paper by Kwabena Donkor, a professor at Stanford’s Graduate School of Business, analyzed millions of New York City taxi cab rides to understand what options resulted in higher tip amounts. Donkor took advantage of several changes that were made to tipping menus, including a change in the default tip percentages and the number of default tip options. Over 97% of passengers in New York City Yellow taxis who pay with a credit card add a tip to their fare allowing for a sample of over a billion payments between 2010 and 2018.
Higher Defaults Lead To Higher Tip Amounts
In 2011, Creative Mobile Technologies (CMT), one of the two companies that supplies touch-screen payment devices for taxi ride transactions, changed the default tip menu from showing 15%, 20%, and 25% to displaying 20%, 25%, and 30%. This led to an 8% increase in tip revenue where the average tip rate increased from 17.45% to 18.84% of the taxi fare. Changing the defaults led to a precipitous decline in passengers who tips 15% and a huge increase in those who tipped 30%.
Interestingly, the percentage of passengers who relied on the default tip options decreased by 19% with the higher menu options. “Setting a high default can be perceived as exploitative, leading to a backlash where passengers lower tips in protest,” Donkor told The Wall Street Journal. Donkor also found that fewer passengers chose default options as the taxi fare increased.
More Options Doesn’t Necessarily Lead To Higher Tips
Donkor also took advantage of a change CMT phased in during 2017 moving from a three-choice menu to a five choice menu. While there was an increase in the percentage of passengers who relied on the default tip, the overall tip amount didn’t meaningfully change.
Other Interesting Factors Influencing Tipping Behavior
Professor Donkor also found several other notable factors that influenced tipping behavior, including two that increased tips:
- Gift-Giving Season: tipping norms and conformity increased during the “gift-giving season”, including Thanksgiving, Christmas, and New Year’s)
- Challenging Road Conditions: individuals were more likely to tip when taking a drive during bad weather, when road conditions were more challenging.
- Multiple Passengers: tipping norms and conformity decreased when there were multiple passengers in a cab, which Donkor posits could be explained by “passengers feel[ing] less liable for the shame of not tipping or paying a low tip as they can shift blame or responsibility to others.”
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