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What We Don’t Know About Taxes
April 18, 2017
What a Sock Can Teach Us
April 20, 2017
For every cab ride, NYC records the place, time, fare (and the tip if a credit card is used). Using the taxi database, Gawker was able to figure out Kourtney Kardashian’s and Judd Apatow’s tips because of time stamped photos that included a taxi medallion number.
We can be pretty sure that Kardashian left a 20% gratuity and Apatow, 30% because the credit card machine recommended a 20%, 25% or 30% tip.
Taxi Tips
Approximately 10 years ago, NYC cabs got credit card machines with screens that suggested a $2, $3, or $4 tip for any fare below $15. By 2012, the dollar amounts had been replaced with a tip calculator that displayed a 20%, 25%, 30% option.
Still, passengers could select any amount. But most did not.
During 2013, riders used a credit card to pay for 55% of all the cabs they used. The data from 51 million cab rides show that 20% was the amount typically (sorry) added to the fare:
Our Bottom Line: Defaults
Harvard law professor Cass Sunstein explained that we gravitate to defaults because they simplify our lives. In his book Nudge, he adds that many people believe the default must be beneficial because it is the default. Furthermore, people get decision fatigue and select the “yeah, whatever” choice because the default is almost like “doing nothing.”
As economists we should add that those default options are decision “nudges” that shape demand and supply. No longer do we have millions of consumers and producers independently affecting equilibrium. Instead defaults create the incentive to select a specific type of mortgage, a certain retirement plan…or a 20% taxi tip.
My sources and more: Summarizing taxi tips, this Bloomberg article has the facts. But if you just want to read about celebrity gratuities, Gawker tells all. Meanwhile, these comments from Cass Sunstein convey a brief overview, and these an in-depth discussion, of his opinion of default options. On the same topic, but from a slightly different perspective, econlife based a post on decision fatigue. Please note that parts of Our Bottom Line was published in a past econlife post.
