concept of a five dollar tip on a dark table with a blurred background

A working paper that examined millions of rides from New York City Yellow taxi cabs from 2010 to 2018 found that a menu of tipping options resulted in higher tips… up to a point. When a menu presented three tip options, the average tip increased by about 11%, when compared with no menu at all but increasing the number of tip options beyond that didn’t move the needle.

According to the study, people tend to use tip menus as a reference point, interpreting the options as indicators of what they should actually tip, explained Kwabena Donkor, an assistant professor at Stanford University’s School of Business, the paper’s author and a former New York City taxi driver. The study found that 58% of riders used the taxi cabs’ tip menus, but often opted out of the menu when calculations were simple.

The study also showed that when the menu increased the three suggested tip amounts by 5 percentage points – to 20%, 25% and 30% from 15%, 20% and 25% – tips as a percentage of fares increased to 18.84% from 17.45%, and total tip revenue grew by 8%. The share of riders who used the menu, meanwhile, decreased when the higher amounts were introduced: Menu usage fell to 47% from 58%.

The study’s authors found that setting a high default can be perceived as exploitative, leading to a backlash where passengers lowered tips in protest. But, the overall increase in tips suggests that the benefits of the menu (avoiding math calculations) still outweighed the negative effect of the higher amounts in the riders’ minds – at least for the tipping options suggested in the study.

Source: The Wall Street Journal

Article by Black Car News

Black Car News provides breaking news, editorial, and information to drivers, owners, and other key players in the New York City for-hire vehicle industry.

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