Tipping follow-up: Oprah’s new advice

Reader Travis Walker says Oprah, ever aware of the slowing economy, has told her viewers to tip 10 percent in restaurants now instead of the usual 15 percent. Oprah’s Guide to Tipping, from the December 2002 issue of her magazine, goes with the standard 15-20 percent rule. At least the beef producers of America now have new friends in the restaurant industry.

On the timing of Oprah’s advice: Wasn’t the U.S. economy struggling in December 2002? Given the lag time in the magazine industry from final edits to newsstands, wasn’t the U.S. economy struggling in, say, October 2002? NBER said the economy was out of a recession by November 2001. Wikipedia says the early 2000s recession was felt mostly in 2002 and 2003. The stock market crashed hard in the last two quarters of 2002.

A pile of $1s

Giandelone also points us to this old 3rd Rock from the Sun clip about tipping.

Will Chicago’s sales tax hike have an effect on servers’ tips?

Eric Giandelone of Chicago poses the following question to Thaler and Sunstein (and to other Nudge blog readers) about the potential effects of the one percent sales tax increase from 9.25 percent to 10.25 percent that recently went into effect in the city.

I was wondering what effects you believe the new increased sales tax in Chicago/Cook County will have on restaurant tips? My wife and I were recently celebrating our anniversary and when it came time to tip, we had to remind each other not to just double the sales tax. Previously, we would have done that for about an 18 percent tip, adding more or subtracting less based on service. For us, that 18 percent was our anchoring point. Now, with sales tax for restaurants at 10.25 percent, doubling down is way more than I am used to. Now, I believe, I will be more inclined to look at the pre-tax subtotal and tip accordingly, which will cause me to reflect on my service much more than a simple double the tax formula and that can’t be good for servers. However, for tourists who aren’t as aware of the new sales tax, this doubling may end up being beneficial to servers who work in tourist areas of the city.

If you’re dining at Navy Pier of McCormick Place, both tourist traps, watch out. The restaurant tax there is 11.25 percent. The servers there could be sitting pretty. Of course, that raises another question. How high would the tax rate need to be for an out-of-towner to do a double take at a restaurant bill and not use the double the tax rule?

A reader notices a self-serving nudge in restaurants

Thaler and Sunstein did not invent the idea of nudging, which has existed at least since Eden when the Serpent nudged Adam to take a bite of the apple. Individuals, companies, and governments often nudge us for self-serving reasons. One of Thaler and Sunstein’s hopes in writing Nudge was (and is) to alert readers to nudges that surround them daily, and to be wary of the self-serving variety. Reader Matthew McClain recognizes an excellent example from the world of restaurant dining.

Many receipts in U.S. restaurants inform the customer what a tip of 15%, 20%, and 25% would be. This subtly sends a message that 20% is the middle, typical, or standard tip. Moreover, on many receipts these amounts are calculated from the post-tax bill. Tips are/were customarily calculated from the pre-tax amount. Few customers catch this, as the service is supposed to spare us the math in the first place.

In my humble opinion, these nudges are not in the spirit of libertarian paternalism. The first intentionally misrepresents the nature of the social norm. It doesn’t say, “Hey, maybe if you thought about it or were fully rational you would give a bit more.” It says (falsely), “The norm is to give more, and you’re a jerk if you don’t.” The second, at best, obscures the pre/post-tax decision from the customer. At worst, it is the kind of mathematics we’re used to dealing with from car salesmen.

Finally, I am skeptical that higher tip rates will yield higher net wages for service employees. Rather, this phenomenon is likely helping to mask inflation in restaurant prices. It will take time and experience for the public to internalize that the surcharge (over the quoted price) of eating out has increased.

Default tipping

Typically, restaurants automatically add gratuity to large tables of six people or more. Now at least one restaurant is automatically adding gratuity for parties regardless of size, according to the Free Exchange. Each bill comes with the following note: “We add a 15% gratuity to every bill, you are welcome to subtract or add more.” At the Nudge blog, we think this default rule violates the spirit of libertarian paternalism.