ECONOMICS AND RESTAURANT GRATUITIES - DETERMINING TIP RATES

Is tipping in restaurants simply a social norm where people tip on the basis of some rule of thumb (15% of bill size for example)? Using evi dence gathered from surveys of nearly 700 diners in 7 Minnesota restau rants, it is argued that tipping is both a social norm and a means of rewarding good service. Survey evidence suggests that diners use rules of thumb as starting points and then vary gratuities on the basis of service just received, expected future service, whether they dine alon e or with a group, alcohol consumption and location of the restaurant. Tipping may be viewed as a game played indirectly between diners in w hich each diner contemplates tipping, or not tipping, based on expecta tions of future service and the tipping behavior of other diners. Tipp ing is commonplace as long as people expect better service when they t ip more and the expected payoff to tipping rises when more people tip, but rare otherwise. Neo-classical economics is quite successful in pr edicting tip size as long as diners view tipping as a pecuniary cost o f buying service.