Tipping

I'm not sure I understand why Greg Mankiw thinks economists "don't understand tipping." When I was learning economics, I learned that people are utility-maximers and that whenever you see some behavior that doesn't seem explicable in purely financial terms that must be because people are deriving utility from the foregone financial advantage. Thus, as any economist could tell you, people tip because of the utility they derive from the tipping in much the way that economists can explain all aspects of human life.

Have I ever mentioned that philosophers tend to think that economics is vacuous? Which isn't to say that you shouldn't listen to economists. These days, they tend to know a lot of math, and math is a very useful thing.

Comments

Thus, as any economist could tell you, people tip because of the utility they derive from the tipping

Yeah, great. Now explain to me what utility they derive...

Posted by Al | October 3, 2007 5:54 PM

"I learned that people are utility-maximers and that whenever you see some behavior that doesn't seem explicable in purely financial terms that must be because people are deriving utility from the foregone financial advantage"

omg! What a completely vacuous tautology! People do things because they like doing things!

Posted by Rickm | October 3, 2007 5:55 PM

I didn't realize social norms was such a foreign concept to economists.

Posted by Goldberg | October 3, 2007 5:56 PM

Yeah, great. Now explain to me what utility they derive...

I think that was the point of Matt's Have I ever mentioned that philosophers tend to think that economics is vacuous?

Posted by Brian | October 3, 2007 5:56 PM

What society do economists grow up in? Don't these people date? You tip on a date 1) because its the right to do and 2) so you don't look cheap. What type of anti-social prick goes "screw you, waitress making less than minimum age. I'm gonna keep this $1.75."

Posted by Reality Man | October 3, 2007 6:00 PM

That's a pretty good Brian Leiter impersonation, Matt.

Posted by washerdreyer | October 3, 2007 6:02 PM

An economist rationally calculates everything in his accountant's soul and assumes the rest of humanity behaves the same way. Yeah, sounds vacuous.

By the way, Matt was being sarcastic.

Posted by jim | October 3, 2007 6:02 PM

You were beginning to lose me with your irrational love affair with the Wizards, but I'm back. Although it's not quite true that economists are completely vacuous. It's just that once you get past Econ 101 supply-demand issues and the insight that there is no free lunch, they really don't have much to say (or rather, they have lots to say, it just becomes vacuous quickly.)

Posted by Steven Donegal | October 3, 2007 6:04 PM

I don't like when tipping is presented as a way to help the poor "less than minimum wage" waiter. If that were true, you should tip more at Denny's than you do at the fancy restaurant, since the waiter at the fancy place is certainly better off. But the social norm goes exactly the opposite way.

Posted by ed | October 3, 2007 6:06 PM

To Reality Man:

Actually, economists do understand why people tip it that situation, and also in the situation where you repeated get the same services from the same person (eat often at the same diner or go to the same barber). In all those cases, you derive benefit (not looking cheap, as you point out, getting good service on your future visits. etc.)

The cases they find puzzling are when you get no such benefit, such as

1. while driving cross country, you eat alone at a diner and it is unlikely you will ever go there again, or be recognized if you do, the bill comes after you have eaten, yet many tip.

2. while buying music online: why actually pay more than a penny, that is, what is the benefit to you (your individual payment will make no difference to radiohead's income and unless they are looking over your shoulder while you do it your friend's won't know)

I do think Minkiw's idea of putting a hat by the podium, as if it is mysterious why student's would "tip" (we called it something else) professors shows he is pretty much an idiot.

Posted by David Margolies | October 3, 2007 6:11 PM

I spent a considerable time bartending when I was younger and I was somewhat surprised to find a high level of appreciation for service and low level of resentment for having to pay for products that the customers wanted. A small number of people are out and out thieves who try to rip you off, but most regular people are happy to compensate you fairly when they are treated respectfully. Outside the context of faceless mass markets, economic exchange is less about rational maximization than about basic fairness. There's probably an ev psych explanation for it.

Posted by Led | October 3, 2007 6:13 PM

"The cases they find puzzling are when you get no such benefit, such as

1. while driving cross country, you eat alone at a diner and it is unlikely you will ever go there again, or be recognized if you do, the bill comes after you have eaten, yet many tip."

To quote Jerry Seinfeld, "we're trying to have a civilization here!" Sometimes things are part of one's culture. Why do traditional Chinese families take such care of their loved ones' graves? That's part of their culture. Doing so involves fulfilling a social expectation. There is no current near-universal norm in the US or the West for what to do when a band like Radiohead lets you choose how much to pay for their new CD. Having studied a decent amount of economics in college, I'm constantly floored by how Dilbert-like some economists view society and social norms. "You're not maximizing your utility/efficiency/profit! You're an idiot! Worship me! Hey, why is everybody leaving?"

Posted by Reality Man | October 3, 2007 6:18 PM

I'm trying to think of some clever reference here involving economists and Steve Buscemi in the Reservoir Dogs breakfast scene, but dammit, I'm not coming up with anything.

Posted by James Gary | October 3, 2007 6:22 PM

The long and short of it is that a lot of economists are sociopaths, and are amazed that everyone else isn't, as well.

Posted by Josh G. | October 3, 2007 6:27 PM

By the way, Matt was being sarcastic.

Oh. Damn Internets.

Posted by Al | October 3, 2007 6:38 PM

To reality man:

I agree completely. I reacted to your first post because the example you gave is one where the benefit of the exchange was obvious. (There is a movie/tv comedy trope of the asshole leaving a big tip when the girl is looking and palming it back when she turns away -- e.g. the chris eliot character in groundhog day).

I would say there is a value to being able to say truthfully that you do the right thing. I am guessing you would too.

Posted by David Margolies | October 3, 2007 6:44 PM

I think it has been established that tipping is, contrary to the long standing belief, no longer primarily motivated by a wish to reward good service (ie. the service worker ("tippee") seeking and obtaining the approbation of the client ("tipper")). Instead, it is inspired by the desire by the tipper to be well thought of by the tippee. The reward/justification virtually flows in the opposite direction to what was the original explanation for tipping.

The end result is that tips are less and less linked to customer satisfaction, and the other issues one would associate with tipping (eg. being a regular, so that the tip becomes a long term investment in on-going better service).

In short, tipping has almost entirely lost its economic explanation.

Posted by McKingford | October 3, 2007 6:44 PM

Because tipping isn't or isn't primarily an economic phenomenon?

I tip ridiculously, even when I may never eat at a place again until that particular waiter has since moved on. It does my bank account no favors and I rarely see the person's face when they see what I left them but I still enjoy doing it.

Posted by DRR | October 3, 2007 6:48 PM

And, as if on cue to prove my point...thank you DRR.

Posted by McKingford | October 3, 2007 6:50 PM

Well, when I visit the Metropolitan Museum of Art in NYC, I always pay $0.01 admission fee! I'm also an economist. :)

Obviously Mankiw knows that according to any economist, "people tip because of the utility they derive from the tipping". Mankiw's puzzle is how to create a robust model, with good predictive power, of how that utility is generated. Mankiw's complaint is precisely that economics is "vacuous" on this score. But he wants to see a model that makes it less vacuous.

I think in general, economics does not do a good job of incorporating social norms into theories of behavior. Economics can explain the role that tipping plays in restaurant labor economics, but why do individuals feel an impulse to tip, even with no reputational incentive?

Posted by nbt | October 3, 2007 6:50 PM

"Have I ever mentioned that philosophers tend to think that economics is vacuous? Which isn't to say that you shouldn't listen to economists. These days, they tend to know a lot of math, and math is a very useful thing"

Were you drunk when you typed that? Isn't it a bit early?

Tipping in the U.S. is purely a way for restaurants and other retail places to get around having to pay social security tax. Its just part of the service employees' wages. In Europe, where service employees get paid their full wage by their employer, and that is reflected in the bill, tipping actually is a way for the customer to express appreciation and as itreated as such.

The political economy question is, why are customers in the U.S. complicit in the tax evasion going on at the restaurants they patron? The principled stand would be never to tip. I think this is partly due to widespread distrust in the guvmnt (see the Social Security thread below), and partly due to the lemming like behavior American culture encourages. And I tip too.

Posted by Ed | October 3, 2007 6:58 PM

"philosophers tend to think that economics is vacuous?"

And perhaps a few scientists as well. Whoops, did I say that last part out loud?

"I don't like when tipping is presented as a way to help the poor "less than minimum wage" waiter. If that were true, you should tip more at Denny's than you do at the fancy restaurant, since the waiter at the fancy place is certainly better off. But the social norm goes exactly the opposite way."

Hey, whatever gets you through your day.

Posted by Rihilism | October 3, 2007 7:08 PM

I generally tip strippers and waitresses well.

Posted by Big Dog | October 3, 2007 7:09 PM

Have I ever mentioned that philosophers tend to think that economics is vacuous?

Ah, so Matt Y.'s economics posts are vacuous because he's hewing to the conventions of the genre rather than because he only has a vague idea of what he's talking about. I get it now.

Posted by MattXIV | October 3, 2007 7:35 PM

I also love how no one at Mankiw's original thread has been direct enough or had the balls like Josh G. to say "sociopath."

Posted by Reality Man | October 3, 2007 7:36 PM

Actually, I read that people DID study the economic aspects of social norms. Being genetically social animals, we do various things, and pay for various things, to belong.

In return, we can get benefits of social cooperations that would not be available if you just treat encounters with other people as single rounds of some game. For example, you drive across some state, you get to an eatery that you probably will never see again, and yet they greet you rather cheerfully and try to do a good job preparing and serving your food (with mixed results, but they surely could do worse). If a typical behavior of travelers would be not to tip anyway, then it would be more rational to save better efforts for the locals, and enjoy being gruff with out-of-towners. By treating your waiter/customer as a representative of a large category with which you have frequent encounters you get the benefit of an established relationship.

Plus, there is some warm feeling when you do so. You belong, you are an American. You can belong to an otherwise despised group, say, atheists passing through Alabama, but when you tip, you are a member of brotherhood.

I recall passing through Evanston, Wyoming. Like in some other cities of that size along Rt. 80 the town has a thriving cosmopolitan downtown district of roughly two blocks. We go for lunch to an artists' cafe (combined with a gallery of the local artist colony). The place seemed to be reasonably popular, we get pretty good wrap sandwiches, tea and coffee. My wife was rather surprised that both liquids were of the same color, and the lady running the place quickly added some expresso, explaining that the diluted stuff is the local preference. There are many circles of belonging here. General waitress/traveler/American, Wyomingian (that's the way we like our coffee!), cosmopolitan (we like civilized coffee) and small-town-exiled-cosmopolitan (telling that we live in a "very small town in the middle of nowhere", although we live in reasonably civilized boondocks of PA, with a thriving 8-block downtown, and the "nowhere" around is a forest, not a desert). Then we depart into Uinta mountains in Utah, never to return.

Posted by piotr | October 3, 2007 7:41 PM

What Ed said...

actually, Ed explains why the social norm persists. There's enough established interest in the system to keep it, despite any occasional moves to change it.

But tipping exists because the convention is one in which the restaurant owners and the patrons agree to "split" the obligation for paying the wages of the waitstaff. That's it.

Asking why people tip is like asking why business owners pay wages and give raises. The only thing different in this case is that social convention dictates the payment of those wages in a more unusual way than we are used to.

Posted by Tyro | October 3, 2007 7:55 PM

Isn't Mankiw's main point that it's unclear (to some extent) why we there's a tip jar at Starbucks but not at McDonalds? Or why we tip cab drivers but not bus drivers. Simply saying "duh you freaking retarded sociopath economists, it's a social norm" misses the question of WHY it's a social norm for market A and not market B.

And if we don't know why these social norms evolved for some markets and not for others then it is very hard to predict what the social norm for some new product will be (i.e. the new Radiohead album).

Posted by TheF79 | October 3, 2007 8:11 PM

You dumbshits should've asked some anthropologists.

Tipping is a way to show status, much like the potlatch. It's not just your date, but also your business acquaintances.

That also explains why the "customary" tip is now thought by many to be 20% of the bill, and not just 15%. (The other explanation is that you fucktard overpaid lawyers can't do math.)

Posted by feh | October 3, 2007 8:11 PM

There's a tip jar at Starbucks and not at McDonalds because they both understand their product and their clientele. Rich, elitists, lawyers snobs go to Starbucks, 3 to 4 times a day, and for all the shit they do TO society, they feel they will get some karmic relief by dropping an extra quarter in to the tip jar. And besides the coins would otherwise make an impression in their cheapass suit and jingle during the settlement meeting when their hands are in their pockets playing with their balls.

Posted by feh | October 3, 2007 8:22 PM

"why we there's a tip jar at Starbucks but not at McDonalds? Or why we tip cab drivers but not bus drivers."

Most bus drivers are government employees. Tipping government employees is illegal. Its called "bribery". Also, tipping is tax evasion, and it does the government no good to engage in tax evasion, or for anyone to help it.

Just think of tipping as the American equivalent of the small bribes that petty government officials demand in Mexico and Eastern Europe, and you will start getting it.

As for McDonald's, it has a drive in window. Most independent coffee houses have waitress service. It makes no sense at all to put something in the tip jar at Starbucks, but its a carry over from independent coffee houses, and most Starbucks patrons are stupid.

Posted by Ed | October 3, 2007 11:24 PM

I tip because it's a social convention and the value of tipping is that the delivery people or wait staff will not spit or pee in my food.

I however had very VERY bad service a while ago at a certain restaurant. The band was two untalented idiots that got drunker as the night went on, though there was almost literally NO ONE else there (3 other customers) we waited 90 minutes for the food. Then they screwed up orders.

My tip? 1 penny. I'm never going back there again.

Posted by MNPundit | October 3, 2007 11:31 PM

Of course, there's always the thought that the hypothesis that people are 'utility maximizers' (what a wonderfully elastic term) is basically an unfalfiable one. Which would explain why some people would think that the discipline of economics is not a science.

Posted by ScentOfViolets | October 3, 2007 11:35 PM

ScentOfViolets, also fun to watch is the economists decide whether YOUR utility function is quadratic or quartic or, well, whatever they hell they need.

Yes, they know math, and they know how to work backwords from the answer to derive the question of interest.

Posted by feh | October 4, 2007 12:01 AM

When I was learning economics, I learned that people are utility-maximers

I hope that what you learned is that they are utility-maximizers. Not that that is any less vacuous.

And in the above light, I have to love ScentOfViolets's comment that the hypothesis that people are 'utility maximizers' (what a wonderfully elastic term) is basically an unfalfiable one.

Internets at they're best!

Posted by dude | October 4, 2007 1:56 AM

Philosophers think -economists- are vacuous? Phrases like pots, kettles, and stones, glasshouses, instantly spring to mind.

Posted by firefall | October 4, 2007 1:57 AM

Plus, I should have said, the claim that people are utility-maximizers is actually not so much vacuous as it is empirically false.

Posted by dude | October 4, 2007 1:58 AM

"Utility maximization" sounds clinical and robotic, I agree. But this is the same as saying that people try as best as they can to satisfy their preferences, subject to various limitations. Why is that such a radical starting point?

Getting back to a point I made above, I think economics has a hard time explaining the tipping-in-a-strange-town phenomenon for the same reason that economics cannot explain why any individual chooses to vote on Election Day. Sure, we can speculate that it makes people "feel good" or it satisfies some internal mandate that it's the "right thing to do", but it's hard to model that or quantify that.

Posted by nbt | October 4, 2007 2:19 AM

"Tipping is a way to show status, much like the potlatch."

The potlatch was prettymuch an entire economic system in its own right.

Of course, a sociologist would probably want to argue that status drives all economic systems. And the political scientist would then point out that status is largely about power. And the circle of pretty social science rivalry whirls merrily along.

Posted by Hodgepodge | October 4, 2007 2:37 AM

""Utility maximization" sounds clinical and robotic, I agree. But this is the same as saying that people try as best as they can to satisfy their preferences, subject to various limitations. Why is that such a radical starting point?

Posted by nbt | October 4, 2007 2:19 AM"

Except it doesn't really tell you much once you move away from such phenomenon as profit maximization. Saying "people will do what they like best when they can" should not even be Econ 101, it should be understood by the 2nd grade as a general idea of why people do what they do. The problem is that when such aspects of human behavior get translated into economic models, a lot gets lost in the translation and/or one gets trapped spouting tautologies. When you can use the same explanation to explain everything in the world, it becomes useless. Think of it this way: Gandhi, Bill Clinton, Halle Berry, Mark McGwire, Charles Manson, Hitler and the Dalai Lama could all claim that they sought to "satisfy their preferences, subject to various limitations." Does that really tell us anything or guide one's quest to understand them that a child could not figure out on their own? What does economics, or at least rather conventional economists like Cowen (who like to think they are cutting-edge and radically cool by doing quirky research and talking about Jamaica and The Clash a lot) really offer us in such situations when this is used as a starting point? You don't need to study neoclassical economics to really try to understand a random collection of people's motives when they don't follow neoclassical assumptions about the world. "Utility maximization" thus becomes a catch-all way of explaining away anything that doesn't conform to the neoclassical model in one way or another.

Posted by Reality Man | October 4, 2007 4:02 AM

tipping big means that i get to walk out of the restaurant like a king. in no other sphere of life is the marginal utility of an additional dollar spent so great. the difference between a good tip and a bad tip is usually a couple of bucks, what the hell else can you buy of such value for a few bucks? in bangladesh, where i live, people tip horrendously, five, ten taka (70 taka to the dollar)to the parking attendant, etc. i drop a 50 or a 100 on them and i'm like the de niro character in goodfellas! and i dont even earn that much! i probably spend less than 1000 taka a month on these kinds of tips, and in return i am treated like royalty everywhere i go. and i do it even in places i will never go again ... its all part of the general feeling of i-run-this-place smugness engendered :-)

Posted by logicat | October 4, 2007 8:54 AM

We tip a the level we do because our daughter -- ex-waitress -- scolded us for being cheapskates.

No utility. No econ. Peace at home.

Posted by Jeffrey Davis | October 4, 2007 9:22 AM

God created economists so astrologers wouldn't look so bad. And they're doing so well! They've predicted 9 of our last 5 recessions....

Posted by Russell King | October 4, 2007 9:30 AM

Have I ever mentioned that philosophers tend to think that economics is vacuous?

Indeed. Now try to guess what economists think of philosophy.

Economists' tendency to act as though economics is the be-all-and-end-all of the social sciences is annoying, but your caricature is not remotely accurate. If you try to argue that "people tip because they derive utility from the tipping", economists will laugh at you. The trick is to explain how people derive utility from tipping; utility-talk is the start of the inquiry, not the end of it.

(To other commenters: neither economists nor any other social scientists are going to be happy with "it's a social norm" as an explanation, because it's completely vacuous. The trick is to explain why there's a norm and why people adhere to and enforce it.)

Posted by Elliot Reed | October 4, 2007 10:43 AM

I think the point that Mankiw and other economists who study the issue are making is that economic models don't adequately explain why A) people tip in situations where they derive no utility and B) as someone else mentioned, why we tip at Starbucks but not McDonalds (i.e., similar services do not create similar tipping markets).

Despite the paranoid rantings of Reality Man, I don't get the slightest hint that economists think people are stupid because they don't always maximize utility according to economic models. They're acknowledging a gap in their science and trying to create discussion on how to fill it. If only more scientists looked at their craft that way.

Posted by mike | October 4, 2007 11:04 AM

"Gandhi, Bill Clinton, Halle Berry, Mark McGwire, Charles Manson, Hitler and the Dalai Lama could all claim that they sought to 'satisfy their preferences, subject to various limitations.'"

That line caused me to spend far too much time and mental energy dealing with images of Bill Clinton and Halle Berry working out the various limitations that affect preference satisfaction--like Hillary.

Posted by CJColucci | October 4, 2007 11:16 AM

Have economists ever acknowledged that their hypothesis of 'utility maximization' might be wrong? Have they ever suggested any method or observation which could disprove their hypothesis? No? When examples are offered to the contrary which would seem to discount this hypothesis, do they ever say, 'hey, maybe our starting hypothesis is wrong.'? Or do they contort themselves, stretch what should be a precise definition of 'utility maximization' out of all useful shape so that they can aver, for example, that Albert Schweitzer was really 'selfish', that he was just 'maximizing utility' but that it's not immediately obvious how? Why, yes, yes they do.

So, no Elliot, that's not science. That's the equivalent of astrolgers making predictions after the fact. Which, come to think of it, economists do quite frequently.

Posted by ScentOfViolets | October 4, 2007 11:24 AM

ScentOfViolets - If you stick to reading the blog of an economist who worked for the Bush Administration, you probably won't find that, but if you read truly academic economic works, even by Mankiw, yes, you will find them changing their hypotheses based on findings.

That's why they're talking about this. Current economic models don't explain tipping in all scenarios, so they're trying to figure out why people do it. The good economists will even delve into physycological explanations other than utility maximization, sociological explanations, etc.

Posted by mike | October 4, 2007 11:33 AM

I did not mean to imply that all economists act in this manner, and if that's how you interpreted what I wrote, I apologize for communicating my ideas so poorly.

You are quite correct, of course, a goodly fraction of the economics community does not do this. Sadly, it seems the ones that do are precisely the ones who are in the positions to 'influence' economic policy. I use the term 'influence' with some reservations, inasmuch as it seems that a lot of economic policy is not determined by prinicples of economics, but rather is justified after the fact by finding economists that agree with those positions. Thus it's quite possible that the only real reason for consulting them is to give these positions the patina of being 'scientific'. The equivalent of scientists working for tobacco companies who maintain that the link between smoking and any of a number of various diseases has not been 'scientifically proven.'

Posted by ScentOfViolets | October 4, 2007 11:59 AM

Did our host mention that philosophers (not philosophy) tend to think that economics (not economists) is vacuous?
Not exactly...but that is what he said, (for you potential tippers) rather than typed, yes?
Does this activity (go you little fingers, go) amount to a tip (even a penny...but of course then I do think you are such cheapscapes) [those little digits could be playin the piano for serious coin], however modest...esp in light of that note from feh about the potlatch.
So far so generous, you fellow tippers.

Posted by calmo | October 4, 2007 12:27 PM

and now for a statement from ron paul about tipping.

Statement on the Tax Free Tips Act

September 26, 2007

Madame Speaker, I rise to help millions of working Americans by introducing the Tax Free Tips Act. As the title suggests, this legislation makes tips exempt from federal income and payroll taxes. Tips often compose a substantial portion of the earnings of waiters, waitresses, and other service-sector employees. However, unlike regular wages, a service-sector employee usually has no guarantee of, or legal right to, a tip. Instead, the amount of a tip usually depends on how well an employee satisfies a client. Since the amount of taxes one pays increases along with the size of tip, taxing tips punishes workers for doing a superior job!

Many service-sector employers are young people trying to make money to pay for their education, or single parents struggling to provide for their children. Oftentimes, these workers work two jobs in hopes of making a better life for themselves and their families. The Tax Free Tips Act gives these hard-working Americans an immediate pay raise. People may use this pay raise to devote more resources to their children’s, or their own, education, or to save for a home, retirement, or to start their own businesses.

Helping Americans improve themselves by reducing their taxes will make our country stronger. I, therefore, hope all my colleges will join me in cosponsoring the Tax Free Tips Act.

Posted by mike c | October 4, 2007 12:53 PM

"We tip a the level we do because our daughter -- ex-waitress -- scolded us for being cheapskates.

No utility. No econ. Peace at home."

Peace at home is utility, dude. Getting more of anything you like to have is utility, even if it can't be measured in dollars.

Posted by AlanC9 | October 4, 2007 1:50 PM

So then what, exactly, is a behaviour that does not 'increase utility'? Of whatever sort? If people tip to 'increase utility', what then of people who do not tip? Or are they also 'increasing utility'.

Posted by ScentOfViolets | October 4, 2007 2:03 PM

Tipping does not always increase an individual's utility - if you skip the tip (and rarely eat at the same restaurant again) you benefit directly.

It is a matter of general principle (morality), which incidentally shows how morality is not necessarily derived from religion. Most people will obey reasonable moral rules even if they would benefit from disobeying.

Posted by skeptonomist | October 4, 2007 4:47 PM

"So then what, exactly, is a behaviour that does not 'increase utility'? Of whatever sort? If people tip to 'increase utility', what then of people who do not tip? Or are they also 'increasing utility'."-Posted by ScentOfViolets

There isn't any. If someone points a gun at you and tells you to dig your grave or they will shoot you now instead of later, whether you comply or not, you are maximizing your utility.

If someone offers you an investment opportunity that is certain to not pay off, but you invest anyway, that is maximizing your utility.

It is a premise, not a conclusion.

Though I believe there is a "perceived" in there. People maximize their perceived utility. The perceptions can be very odd, possibly even involving self-deception.

Take tipping for example.

The origins could be to reward good service, and ensure it continues. That utility is obvious.

The practice could become custom. You tip in order to belong. Feeling part of the group is a powerful reward. That is utility.

Ostentatious largesse has rewards. It often results in respect, or even power. That is utility.

Now, for the case of the nameless, faceless one-time visit that results in a tip, why do that? It feels good to convince ourselves of altruism. We like to think that we do things because we are good, not because we are seeking utility. On the whole, this self-deception is beneficial to society, and is probably hard wired. It doesn't turn off just because we are in a strange diner in a far away place. When we leave that tip, we are acting on our impulse to do "good", and on our self-deception that tipping is "good" rather than utile.

Posted by Njorl | October 5, 2007 1:31 PM

This is a pretty facile way of reading Mankiw's post. Of course you can come up with an explanation for tipping. But, as Mankiw asks, can you explain why people tip for some services and not others? Can you explain why the services you tip for vary across culture?

There is a whole lot of data out there (how much people tip for various services) and not a single coherent theory which can predict this data.

Posted by alex | October 12, 2007 1:29 AM