Decisions, Decisions

Not What to Decide, but How

by Dan Goldstein

Taxi Drivers Get Bigger Tips When Paid By Credit Card

Taxi drivers get bigger tips when paid by credit card

Published on March 10, 2010 by Dan Goldstein in Decisions, Decisions

CHOICE ARCHITECTURE ON WHEELS

I was in a cab in Houston some years ago. The driver said that he did not like it when people paid by credit card, claiming that if the card turned out not to be good, it was his loss. I never really understood this. Perhaps in Houston they used the old-fashioned schoonk-schoonk credit card readers that don't approve the card first?

One would have thought the drivers would appreciate having less cash on hand, giving people less reason to rob them.

New York City cabs now have credit card readers and touch-screen computers in the back. They present the passenger with preconfigured tip options, which start at 15%. The passenger can enter his or her own tip, but this requires more typing. What does this do to the amount people tip? The data are in. It turns out that the cabbies get bigger tips when cards are used.

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Why? Good question. Perhaps when people tip by cash they tend to round against the driver's favor. Or perhaps the menu of choice options causes people to see the merits of tipping at least 15%. Or perhaps when the least-effort option is to tip 15% or more, people will go down the path of least resistance. Similar, but not totally similar to default effects, a specialty of mine.

P.S. I like to use PayPass. One simply holds his or her keychain (or special credit card) up to a PayPass reader in the back of the cab et voila, payment magically occurs. It is the ultimate in payment decoupling, you literally do not have to touch anything in order to pay. We see a future PhD thesis topic in this somewhere. Would not having to touch anything make you more likely to pay? Would you pay more?

Photo credit: flickr.com/photos/thomashawk/69593289