An Economist’s Tipping Strategy

(Photo: Marcin Wichary)

(Photo: Marcin Wichary)

I have a friend with whom I regularly eat out at restaurants and from time to time we disagree on how much to tip.  Traditionally, I have been a hard-wired 20% tipper.  But since studying the racial effects of taxi-cab tipping, I’ve been more attracted to tipping less – sometimes closer to 15%.  This has at times created disagreements between my friend and I on how much to tip.  He always wants to tip 20%.  But when we’ve disagreed, we’ve always resolved the issue by tipping the larger amount.  We always split the bill—including the tip—50/50. 

But a few weeks ago, my friend and I were eating dinner and experienced exceptionally bad service.  The server twice put in the wrong order and charged us for items that we had not ordered.  I suggested that we reduce our tip to 10% (I note that while I’m high maintenance in many aspect of my life, I’m not persnickety about restaurant service and the last time I reduced my tip to 10% was probably more than 1000 restaurant meals ago).  My friend agreed that the server had made these errors (and indeed, the sever himself acknowledged that the service was subpar),  Nevertheless, my friend still wanted us to leave a 20% tip. 

I proposed something different.  I suggested that we should either leave a 10% or a 100% tip and that I’d let my friend decide which was more appropriate.  I said I’d prefer to leave a 100% tip than a 20% tip, in part to signal to the server that something was out of equilibrium. 

My friend was very annoyed by my proposal.  He claimed that our norm of leaving the higher preferred amount would not allow one of us to choose an amount 5 times our norm. Additionally, it did not allow one of us to threaten a high amount to extract a low tip.

Nonetheless, my friend gave in and chose to leave 10%, though he was sufficiently upset with my strategy.

For the rest of the evening, our conversation was a little less comfortable because of my “Why Not?” stunt.  A cautionary tale for Freakonomics nation.  (Much safer to play credit card roulette).

For more on tipping, check out the Freakonomics podcast “Should Tipping Be Banned?

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  1. Roger Bixley says:

    The correct strategy would have been to inform the manager. Chances are he would have corrected the problem, disciplined the mistake-prone server, and potentially reduced your total bill so you would have paid less and, in turn, if you paid the 20% gratuity on a reduced check, would have meant less money for the server anyway.

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    • Ken says:

      Imagine a $50 bill and a $5 tip (10%). Now, say you get the bill reduced to $40 and tip $8 (20%).

      Your solution means that the waiter is incompetent at his job, the result is he loses $2, but he costs the restaurant $10. You pay $3 more this way, but, you get to pat yourself on the back for being a great tipper. Which is really all you’re apparently going for.

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  2. Ian says:

    Alternatively, realise that you have paid the inflated restaurant price to be served your meal and get over this weird thing the states have about huge tips.

    For example: http://www.whototip.net/tipping-in-italy

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    • Dynise Basore-Ranfagni says:

      Ian, as someone who earns their living as a server and whose family has two restaurants in Italy, I heartily disagree. The vast majority of servers in the US are paid $2 an hour (courtesy of Congress being lobbied by the NRA in 1991) and this actually LOWERS the price of restaurant meals in the US (in full service restaurants). However in Italy servers are paid a monthly salary with six weeks of paid vacation, tredicesima (an entire extra MONTH of salary at the end of every fiscal year) and get completely covered health care courtesy of the taxes paid by the business owner. So, if we adopted that system that would increase costs way more than any tip you would leave and service standards (on average) would drop (the work there is contract and you can not simply be fired).

      Research, people, research…from the peanut gallery, who half the commentators here would likely treat with disdain when I serve you.

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      • Dynise Basore-Ranfagni says:

        Reference my later comment with links to legislation and to salaries in Italy. My brother in law and his wife own two restaurants in Tuscany and my husband and I work in the restaurant industry in the US (he also worked in the industry in Italy) What applies in Italy would be absolutely unfeasible in the US because of the difference in labor legislation (FLSA)

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      • cd says:

        If tip plus the $2/hr minimum wage for tipped labor falls below the standard minimum wage, the restaurant is required to make up the difference. The problem is that this is harder to enforce than an ordinary minimum wage.

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      • greg says:

        But is service actually better in the US?

        It’s proven that quality of service makes basically no impact on tips (this story just furthers that) so there is no real incentive to tip.

        I would argue you are likely partially confusing serving cultures and equating not how effective the service is but making the assumption the over-familiar nature of american service is better than a more european style.

        I hate the american style of service and it’s encroachment in the UK. I want formally polite quick and efficient service. I don’t care about how friendly they are,

        Bad service means no tip,

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      • Bill S says:

        ” get completely covered health care courtesy of the taxes paid by the business owner.” Courtesy of taxes paid by all Italian taxpayers. Do waiters, etc not pay taxes on their wages?

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  3. Dave says:

    And this is why economists tend not to have too many friends….

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  4. Teresa says:

    Another option is to write on your receipt your problems. I’ve been told that leaving a small tip doesn’t automatically get your message across to the server – some might just think you’re cheap. If I leave a smaller tip(which is rare) I include a short message about why I did so.

    And my husband and I have had the same problem with friends. We almost always tip 20 percent. But if we feel we’ve received exceptionally bad service, we tip 10 or 15 percent. Our friends have yelled at us about this, even though they admit the service was horrendous.

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  5. Todd Fulcher says:

    The correct strategy is to get separate checks. Then you can leave the tip you think is fair, and your friend can do the same.

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  6. Paul Walker says:

    So someone does a great job and they get 20%, they do a poor job and get 20%. You’re not really encouraging the right behaviour are you? Surely you should tell your server at the start of the meal that there’s 25% up for grabs if they’re fantastic, 15% if they’re okay, and nothing if they screw up, or ignore you or are rude. You could even have a little card printed…

    Personally I think tipping only makes sense if it’s linked to effort, not just doing the job, which is why I can’t tip a taxi driver or a barman (unless they actually go out of their way to do something extra).

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    • Enter your name... says:

      The research shows that tipping just doesn’t work as a method of incentivizing desirable behavior, especially for one-off encounters. Good servers just don’t pay attention to tips—they know that it all comes out in the wash anyway—and bad ones aren’t usually bad due to lack of effort.

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  7. FDUK says:

    Why do we tip at all. Its only an excuse for the owner to underpay the waiting staff anyway. Just increase the price of the food and pay a proper wage. And then no need to tip.

    Would you tip at the supermarket? theater? No, so why do we do it at a restaurant. no one tips me in my industry whatever the level of customer service.

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    • Zeke says:

      2.13 x hr

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    • Dynise Basore-Ranfagni says:

      You tip because the National Restaurant Association got Congress to pass laws reducing server pay to virtually nothing so owners could legally maximize profits at the expense of employees, otherwise no one with a functioning brain would actually do the job. The vast majority of states pay servers $2.13 and hour.

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  8. Mark B says:

    Hidden due to low comment rating. Click here to see.

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    • William says:

      In my state Missouri, if you don’t make out to equal minimum wage off tips the company or owner has to pay you to make up the difference. I’ would also like to point out that most servers expect to be tipped and would tamper with food if not given the proper amount they see fit. I had an off duty waitress say the waitresses remember poor tippers and would screw with your stuff if you came back in. Another thing is no one I have ever met records all their tips. If a waitress makes 100 dollars in one night. She might only record 40 dollars for the night.

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      • Emily says:

        It is ridiculous to assume that any significant number of servers would “tamper with food.” I waitressed throughout high school and college (and after college) and never – not once – did I see a server do such a thing.

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