The American System of Tipping Makes No Sense

If you want to understand how meritocracy acts as a cover for inequality, look no further than our broken understanding of gratuity.

Here’s a simple question. It’s Sunday. You order coffee and a simple breakfast—eggs, bacon, toast—at a local diner. The service is efficient, but not memorable. The bill comes, and it’s $10. What’s the tip?

• $1.50, according to typical online guides for foreign travelers in America
• $2.00 at least, according to The Washington Post
• $3.00 for sure, according to The New York Times
• Whatever the hell you want, according to some guys on Twitter

I have no confidence that anything I write here will persuade readers to increase or decrease their average tip. To me, the range of answers raises a larger question: Why are we still crowdfunding worker salaries when tippers so clearly do not know what the hell they’re doing?

The history of tipping isn’t well documented, but it’s thought that aristocrats in England kicked the whole thing off when they started leaving hoteliers a little something extra on the way out. The practice then spread to the rest of Europe and the United States in the 1700s. While Europe’s political revolutions in the 19th century mostly did away with the custom, tipping persisted west of the Atlantic. Gratuity took hold in U.S. restaurants and barbershops and shoeshine stands and everywhere else where American customers could be made to feel, briefly, like a pampered aristocrat.

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.

Third, even when the characteristics of the driver do matter, they’re often characteristics that driver can’t control. Women get higher tips than men, and younger women get the highest tips. (Men tipping younger women accounts for most of the difference between male and female tips.)

After all of these dynamics are taken into account, the actual service finally comes into play. Highly rated drivers get the most tips, and so do new cars and smooth rides. Using “telematics data” from drivers’ phones to detect hard accelerations and hard brakes, the researchers concluded that riders left smaller tips after herky-jerky drives. “The quality of the drive does seem to affect the tip,” List said. “It just matters way less than all these [other] factors.”

The notion that tips are a reward for excellent service is, then, a fallacy. And that fallacy reflects some very American ideas about motivation and money.

In Europe, the birthplace of Western aristocracy, countries have moved away from a practice that once denoted class differences. Today, servers across that continent are paid living wages and don’t rely on crowdfunded generosity.

The United States, founded as a rebuke to the old world, has allowed a de facto aristocracy to bloom in our country, where low taxes on the rich, combined with meager welfare for the poor, lead to income inequality reminiscent of a feudal state. Tips are a tiny part of that big picture. But they’re a perfect representation of the philosophy that underlies it: Tipping survives because of the notion that industriousness must be coaxed from individuals through constant threat of their immiseration.

Service workers are trained to play a game—smile for 20 percent and wink for 30. But the game is worse than dubious; it might not exist at all. The lesson of the Uber paper is that tips mostly aren’t about service. The quality of the ride isn’t nearly as important to a driver’s bottom line as the characteristics of the stranger holding the phone that hails the car. As with so many other aspects of the economy, we sustain a false theory of merit-based rewards to explain a world often governed by dumb luck.