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.

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.