A new study has examined the real reasons people tip and questioned whether the practice genuinely improves service quality. Researchers identified two main motives behind tipping: sincere appreciation for good service and the desire to conform to social norms. Those who tip out of gratitude often leave larger tips, while conformists follow the prevailing custom. Over time, this dynamic has led to rising average tipping rates, as seen in countries like the United States, where tips once averaged around 10% but now hover closer to 20%.

The study, published in Management Science, was conducted by Dr Ran Snitkovsky of Tel Aviv University and Prof. Laurens Debo of Dartmouth College. Their theoretical model explores how both personal feelings and social behaviour influence tipping. Dr Snitkovsky explained that traditional economics cannot fully explain tipping, since a purely self-interested person has no reason to tip after receiving a service. Past theories suggested that people tip to ensure better service next time, yet this fails to explain why customers still tip workers they will never meet again, such as taxi drivers or hotel staff in other cities. The researchers argue that psychological and social factors play a much stronger role than financial logic.

Using tools from game theory and behavioural economics, the researchers divided tippers into two categories: “appreciators,” who tip out of gratitude or empathy, and “conformists,” who do so to meet social expectations. Their model showed that in societies with stronger social pressure, tipping rates tend to rise because conformists emulate the behaviour of generous appreciators. This process naturally drives up the average tip over time. The findings also suggest a link between higher tipping rates and rising income inequality, as wealthier customers can set higher norms that others feel pressured to follow.

The study further explored whether tipping truly motivates servers to provide better service. The researchers found that while tips can slightly encourage effort, the effect is weak when most customers are conformists who tip the same amount regardless of service quality. In the United States, where tipping is widespread, this means many servers have little incentive to go beyond the norm, as they can expect roughly the same tips regardless of their performance. In a society made up entirely of appreciators, tips would be a stronger motivator, but this scenario is unrealistic. Moreover, in such a world, businesses might interpret higher tips as a willingness to pay more overall and raise prices, which would likely reduce tipping again.

The researchers also looked at the controversial “tip credit” system in the U.S., which allows employers to pay servers below the minimum wage, assuming tips will make up the difference. For example, if the minimum wage is $8 per hour, employers in some states can pay as little as $3, expecting tips to cover the rest. Dr Snitkovsky noted that while this system can lower menu prices and make businesses more efficient, it often reduces servers’ actual earnings. Essentially, it allows employers to use customer tips to subsidise wages, shifting part of the labour cost from the business to the customer.

Despite recognising some advantages to tipping, Dr Snitkovsky admits he personally dislikes the practice. He argues that tipping creates social discomfort and can reinforce discrimination, as studies have shown that female servers and those from minority backgrounds are often mistreated. Tipping can also foster inequality between customers, rewarding those who can afford to give more. However, he acknowledges that tipping has some redeeming qualities, such as allowing people who value good service to contribute more and indirectly subsidising others. Still, he believes that in the modern era, businesses have better ways to measure performance—through reviews, ratings, and direct feedback—making the traditional tipping system an outdated and inefficient form of incentive.

More information: Ran Snitkovsky et al, A Modeling Framework for Tipping in the Presence of a Social Norm, Management Science. DOI: 10.1287/mnsc.2021.03422

Journal information: Management Science Provided by Tel-Aviv University