Is there a magnitude effect in tipping?

Abstract

The present study examined nearly 1,000 tips recorded for two taxicabs, two hair salons, and two restaurants. In each of the six cases, amount of tip increased linearly as a function of the amount of the bill. Contrary to standard microeconomic theory, there was a magnitude effect in that as the amount of the bill increased, the percent tip tended to decrease. The present results extend the findings of Chapman and Winquist (1998), obtained using hypothetical scenarios, to real-world tipping behavior. Chapman and Winquist argued that a magnitude effect in tipping reflects the shape of the utility function for money. We suggest, however, that the magnitude effect may be the mathematical consequence of replotting the fundamental relationship between tip and bill amounts in terms of percent tip, given that the observed linear relation between tip and bill amounts has a positive intercept. We suggest further that the positive intercept arises because a tip represents a judgment as to what constitutes a fair or equitable wage, and part of what constitutes a fair wage is independent of the amount of the bill, reflecting compensation for simply being there when needed. The present account implies that different explanations may be needed for magnitude effects observed in different domains.