To Tip or Not to Tip: Emotional and Monetary Tradeoffs in Tipping

Imagine experiencing great service in a cash-only tipping environment, following which you realize you don’t have enough cash to reciprocate the quality of the service. What do you do? Although tipping norms vary by culture, they are commonly used to promote efficiency by allowing consumers to reciprocate service workers’, such as waiters’ and taxicab drivers’, efforts. The rule of thumb is that the better the service the higher the tip. Consequently, very low tips are more likely to be associated with poor service. This paper investigates a tipping paradox and shows that consumers that experience good service would rather not tip at all when the only other alternative is to tip very low. Thus, when not having enough cash, good service providers can end up economically “punished.” We present evidence from three experiments.