The Economic Value of Norm-Adherence and Menu Opt-Out Costs: Evidence from Tipping

Kwabena Donkor

Research Papers from Stanford University, Graduate School of Business

Abstract: The trade-offs between private consumption versus social norm-adherence and choosing from a menu versus computing a preferred option affect nearly every decision-making process. I empirically analyze these trade-offs using passenger tipping data from 43 million New York City Yellow taxi trips. I estimate a model where tipping choices depend on people’s beliefs about the social norm tip, the shame from giving less (norm-deviation cost), and the opt-out (cognitive) cost of calculating a non-menu tip. I use the model’s structure to infer the unobserved population distribution of beliefs about the social norm tip and find that norm-deviation and opt-out cognitive costs are large relative to the taxi fare. I then analyze how norm-adherence and menus impact profits and consumer welfare.

JEL-codes: D01 D22 D64 D91 L1 (search for similar items in EconPapers)
Date: 2021-05
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:3960

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