Business

When given a tip menu option, people will pay extra


Does offering consumers a menu of tip options make them more money?

One working paper looked at millions of rides from New York City’s Yellow cabs between 2010 and 2018, found that menus led to higher tips — up to a point.

For example, when a menu presents three tip options, the average tip increases by about 11% compared with no menu at all. But increasing the number of tip options beyond that does not cause riders to tip more than they tip when three options are available.

Kwabena Donkor, assistant professor at Stanford University’s School of Business, author of the paper and a former New York City taxi driver, says people tend to use the tip menu as a point of reference. or anchor points, interpret options as indicators of what they should really tip.

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The study found that 58% of riders chose to use the taxi’s tip menu, although riders tended to choose not to use the menu when the calculation was easiest. For example, when the price of a taxi is a multiple of 10 dollars, research shows that riders are less likely to use the menu. Specifically, 53% used the menu when the fare was $10 and 47% when the fare was $20.

In part of the study, Dr Donkor looked at what happened when the menu increased three suggested tip levels by 5 percentage points, each to 20%, 25% and 30% from 15%, 20 % and 25%. Tipping as percentage of fare increases from 17.45% to 18.84% and total tip revenue increases by 8%. Meanwhile, the percentage of people using the menu decreased when higher numbers were introduced: Menu usage fell to 47% from 58%.

“Setting a high default can be seen as abusive, leading to backlash when passengers reduce their tips in protest,” he said.

However, as shown by the overall increase in the amount of tips awarded, the benefits of using the menu (avoiding calculations and tipping) still outweigh the negative effects of a higher amount in the mind of the user. riders — at least for the tip options suggested in the study.

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Ms. Ward is a writer in Vermont. Write to her at [email protected]

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