© 2019

61. Tip Now or Tip Later?

The Good Service Paradox

The Question:

You are on a business trip in an out-of-the-way town and just had dinner at a fancy, expensive local restaurant. The maitre d’ gave you a good table, the waiter was attentive, the sommelier had an excellent wine suggestion. It is quite regrettable that you will visit neither the town nor the esablishment ever gain.

The bill arrives. Happy with the service, you leave a nice tip.

Right?

 

The Paradox:

Not if you’re rational.

A sensible, logical patron would obviously not tip the service staff. Why should she? Dinner is over and she is very unlikely ever to come again. It would be highly irrational to leave money just lying on the table. Would she do that after after purchasing groceries at the supermarket? Or after getting a driver’s license at the Department of Motor Vehicles? Or following a doctor’s appointment? Would she leave a little something for the cabin attendants on the flight back home? She would not do so then, so why do it now?

True, hoping for good service, she promises herself at the beginning of the meal – and tries to convey this to the restaurant staff by overtly friendly behavior – that she fully intends to leave a good tip. Deep down she may even mean it: good service deserves a reward. But once the meal is over…why?

The problem becomes even more acute because the waiter, a rational professional with instincts honed over many years of experience, realized as soon as the lady entered his establishment that she was a rational businesswoman from out-of-town. He concluded, quite logically, that she would not tip him at the end. Hence, he would be better off expending his efforts on the regular clientele and ignoring the lady.

So, here’s the paradox: the customer would like good service and is prepared to give a gratuity for it, but there’s no way she can make it happen.

Oh, correction! Maybe there is a way to make it happen, even when confronted with a skeptical waiter: tip him beforehand. This would solve the problem, would it not?

No, it would not; pre-paying the gratuity simply raises another problem. After pocketing the tip, the rational waiter no longer has any incentive to provide good service. The lady is back where she started…minus some cash.

So, what goes? Should one tip before or after the meal?

 

Background:

In contrast to fixed prices paid for product and services, from the perspective of rational economics tipping is a conundrum. It is voluntary and is granted, if at all, after the interaction between the parties is already over. Like philanthropy, altruism, charity – laudable concepts all of them – in terms of naked self-interest gratuities have no raison d’être.

Moreover, dangling the promise of a bonus over a service provider, as a reward for good performance, is a pie in the sky pledge, somewhat akin to the prospect of going to heaven after death as a reward for good deeds, or of getting 72 virgins in paradise for being a moslem martyr. Only the very naïve would fall for such a promise. In fact, in some cultures, offering a tip is considered an insult. And at times, it may even be illegal. (Imagine offering a gratuity to the nice policeman who stopped you for speeding.)

 

Dénouement:

Similar to Parfit’s Hitchhiker (see Chapter ///), the paradox occurs because of a confusion about the cause-effect relationship. In general, a cause leads to an effect. It may be desired or undesired, but what is certain is that the cause must come first and the effect afterwards: medication leads to recovery, crimes lead to punishment, etc. Similarly, good service should cause a tip at the end, while a tip at the start should engender good service.

Hence, to answer the question, whether to tip before or after the meal, we must, first, clarify which is the cause and which is the effect. If a tip is meant to be the reward for good service, then good service is the cause and the tip is the effect. In that case, the waiter will be obliging and the tip should come at the end. If good service is the result of a tip, then the tip should come first and good service will follow.

The problem arises when diners and waiters have different points of view. A diner may consider good service a prerequisite for a tip, while the waiter considers the tip a prerequisite for good service. With no tip forthcoming at the start, service will be terrible and the disappointed diner won’t be leaving a tip.

Or the diner may consider good service the result of a tip, while the waiter considers a tip the result of good service. Then the tip is given at the beginning …. and service is again terrible because the rational waiter cannot expect any compensation for his good service.

The problem may disappear only if both sides agree on the cause-effect relationship. In this case the tip can be given either at the beginning or at the end, and both diner and waiter perform their parts of the unwritten understanding.

Take note, however, that there is an additional requirement in order for the problem to disappear, quite apart from agreement on the cause-effect relationship. The key phrase in the preceding paragraph was ‘unwritten understanding’, synonymous with trust. Strictly speaking, trustworthiness is incompatible with rational economics. And that is why the situation with the out-of-town businesswoman is so vexing. Even though she and the waiter may have agreed on which is the cause and which is the effect, he did not trust her to tip him after good service, and she did not trust him to give good service once she had tipped him.

Hence, in the absence of trust, something different is required to make interactions between diners and waiters work: contracts. (See Technical Details.)

 

Technical supplement:

When purchasing physical goods, payment for, and receipt of, the merchandise generally occur simultaneously. With services, on the other hand, there is a delay between the provision of, and the payment for, the service. This time gap is the root of the problem. If the parties act strictly rationally, both pre-payment and post-payment may lead to problems, as the ‘gratuity versus good service’ example shows.

Fortunately, in a nation of laws there exists a solution: the parties commit to a binding contract. In a restaurant, for example, the bottom of the menu may carry a remark which says “15% will be added to the final bill if the service was acceptable”. The diner knows that he must pay the gratuity, and the waiter, knowing that the diner knows, will do his best.

The corrolary, of course, is that the contract be enforceable by authorities who have the power to do so.

 

© George Szpiro, 2019