The Tipping Point

Servers take note: the smaller the bill, the bigger the tip. In a bit of economic irrationality, big dollar meals don't bring in bring in bigger gratuities. This behavior--known as the magnitude effect--happens whether the service was good or bad.

After looking at nearly 1,000 tips given to waiters, cab drivers and hairstylists, author Leonard Green, lead author and psychologist at Washington University in Saint Louis, found that the standard rules of microeconomics breakdown when the bill is below $50. If we were automatons, perfectly subscribed to the laws of economics, everyone would always tip the same, say 15 percent.

"Percentage-wise you give less on a $150 bill than you do on $20 bill," says Green. As the check gets smaller, he argues that more psychology--and less arithmetic--factors into what makes a tip "fair". He chalks up most of the magnitude effect to patrons financially expressing their thanks for service--be it a cab ride, hair cut or a drink. "It is payment for them just being there," he explains.

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Green admits that there are many other psychological factors that factor in the decision of how much to tip. Yet, the magnitude effect remains important because it is commonly used it in day-to-day decision-making. Do we choose to snack now to ease our hunger pains, or wait it out for the well-rounded healthy meal?

Green has previously found a magnitude effect in the lottery. When people were offered $500 up front or $1000 a year later, most took the smaller sum. Yet if there was a bigger the offer at the end of the year--such as $100,000--people would ask for more up front. The current study can be found in the Psychonomic Bulletin & Review.

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