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In my experience, two groups of people complain loudly about American tipping habits.
One is Europeans. They think that American tipping habits are overly generous and don’t make logical sense.
The other is economists. They also think that American tipping habits are overly generous and don’t make logical sense.
But tipping is ineradicable and getting stronger. The standard tip has recently been creeping up from 15 towards 20 percent.
That’s why it’s puzzling that one American restaurant, Sushi Yasuda, has decided to forbid tipping.
Tipping is immensely puzzling to economists. Why would people give their money away for no reason whatsoever? (And research shows that tipping has essentially no effect at motivating better service). But a restaurant refusing to accept tips is just as puzzling. Why reject free money?
The restaurant says it has to do with Japanese culture. But I doubt it. I've been to a lot of other Japanese restaurants in the US and never once had my tip refused.
Let's think about the prices of concert and sporting tickets. If you want to see an economist flustered, ask her to explain ticket pricing. This market is incredibly inefficient, to use the technical term. If you want to see, for example, today’s hottest band, One Direction, you need to essentially win the lottery, by calling at exactly the right time.
Economic theory breaks down here. It says that this situation should fix itself in a jiffy. One Direction ought to just raise the price to X dollars, where X is a value where everyone who wants a ticket gets one with no trouble and all tickets are sold. (technically X is known as the market clearing price). The puzzle is that the actual cost of tickets is well below X, meaning that scalpers can make a fortune reselling the tickets.
Why?
The most likely theory is that One Direction, like Lady Gaga and the New York Yankees, are different from Trader Joe’s Peanut Butter, which is sold at the market clearing price. Musicians and teams are goods that people have a close emotional relationship with. And they want to feel like that relationship is reciprocated, at least a little bit. They don't want to feel like they are being squeezed for the maximal amount of money they will pay. And so charging less is more profitable for One Direction, in the form of continued loyalty, friends telling friends, buying t-shirts and CDs, etc, in the long run.
We keep our money out of our friendships. It’s the same reason that Jerry and George can’t give Elaine $182 for Christmas. And the same logic applies to high end restaurants in Manhattan, where buzz is essential, and word of mouth can make or break a restaurant. Keeping the customers happy is essential and if refusing tips to make them feel like friends is what does it, they will go there.
Expect more restaurants to forbid tipping soon.
