Default Tip Suggestions in NYC Taxi Cabs

Abstract

This paper explores how default options influence perception of the social norm though changes in tipping behavior where consumers can use a suggested default or manually enter a tip amount. To identify the impact suggested tip levels have on behavior, I take advantage of the variation of credit payment vendors within the New York City taxi industry. Using both timing of the payment screen installations and variation across taxis in the technology vendor, I find that a five percentage point increase in the default tip percentages results in decreased default selection, albeit an increase in frequency of manual tips. Furthermore, I find that this increase is significantly greater for individuals who place relatively lower weight on their norm belief. This research demonstrates how the interaction of implicit social norms and cognitive costs together explain the ‘trade-off’ phenomena within the default literature where following an increase in defaults, the propensity to leave a default contribution decreases while the average contribution increases. The results of this research provides a practical perspective for firms considering the implementation of default suggestions.