The socio-economic motives underlying tipping behaviour

Abstract

Tipping is a unique phenomenon. There are various economic theories on the rationale behind tipping behaviour; two mainstream views are the narrow neoclassical view and the open-ended behavioural view. However, neither of these views provides complete explanations and insights into tipping behaviour. Tipping is a very important economic activity that accounts for a substantial part of our expenditures. Therefore the motives behind tipping should be a critical concern to us and there is a need to conduct in-depth analysis on tipping as an economic activity. This study sets out to improve our understanding of tipping behaviour. In order to achieve this, possible socio-economic motives behind tipping are identified. There is an attempt to verify these motives with empirical evidence obtained in this study. A survey on restaurant tipping was designed and implemented, prompting respondents for their tip percentages as if they were dining in a restaurant. Using information so obtained, the socio-economic factors that influence individuals’ tipping behaviour was determined by econometric analysis.Based on the results of this study, individuals may be tipping to conform to social norms, to be altruistic and to encourage better future service. Service quality, the tipper’s ethnic background and the tippers’ area of study seem to be the major determinants of tip percentages. Poor service is the main factor causing individuals to decide not to tip in a restaurant. An interesting finding is that individuals fail to accurately convert their expressed tip percentages to dollar amounts. This implies that individuals may be cognitively constrained. Another noteworthy outcome is that 26% of all respondents choose to tip even when service is poor and when they are dining in a restaurant they will never visit again. This leads to the concept of a core and marginal tip. Without future service considerations, the mean tip when service is poor can be viewed as the core tip that is likely shaped by social norms and altruism. The marginal tip can be viewed as the increment in tips when service improves. Results of this study lead to the conclusion that tipping is a multi-faceted phenomenon. It is influenced by a number of different motives; therefore it is better explained by a combination of neoclassical and behavioural theories.