The case for tipping borrows equally from Econ 101 and behavioral psychology. By outsourcing compensation to consumers, companies can pay their employees less. By controlling tips, consumers can tell themselves that they’re shaping excellent service—or connecting personally with a worker (“… and this is a little something from me.”)
In both cases, there is a tacit assumption that tipping “works” because it makes service better and makes labor compensation more efficient. But a new paper using data from Uber rides comes to the stark conclusion that this assumption is wrong.
Travis Kalanick, the founder and former chief executive of Uber, infamously hated the idea of allowing tipping on his app. Something about adding psychological “friction” to the ride, reportedly. But John List, who served as chief economist at the company, disagreed. Drivers were so desperate for extra cash that many were busking for tips by hanging buckets on the back of their seats with signs begging riders to top off their meager income from driving. Talk about added friction.
In 2017, Kalanick was gone. Uber finally added a tipping function on the app. And List saw an opportunity to learn something profound about a behavior whose psychology had evaded other researchers. “The literature on tipping is replete with really nonconvincing studies with a paucity of data,” List, who has left Uber and is now a professor at the University of Chicago and the chief economic adviser at Lyft, told me. “I thought we could use the function on Uber as a nationwide field experiment to figure out some facts about how tipping really works.”
List analyzed 40 million UberX trips across the United States in August and September 2017, along with co-authors Bharat Chandar at Stanford University, Uri Gneezy, at UC San Diego, and Ian Muir, the head of economics at Lyft.
“These findings slay the conventional wisdom about tipping,” List told me. “We thought that if we added tipping, the quality of service might go up,” he said. “But it turns out, the quality of the service isn’t very predictive of the tip.”
The paper has three big conclusions. First, most people don’t tip their drivers. Nearly 60 percent of Uber riders never leave a gratuity. Only 1 percent of people always tip.
Second, most tips have little to do with the driver. It’s mostly about the rider. Men tip 23 percent more than women. Tips tend to be higher for airport and business trips, because people are generous when paying with other people's money—especially when those people are the boss. Trips in small cities get higher tips. Same with early-morning and weekend-evening drives. In all, “rider-side effects”—the gender of the riders, where they were picked up, how long the trip was, and whether they were routine tippers—explain three times more of the tipping variance than the qualities of the driver or the drive itself.