25%, 20%, 18% tip for what?

Tipping culture has gone way too far.

Nowadays, you're asked for a tip nearly everywhere.

Are we tipping at driver thrus?

15%, 20% on a sweatshirt purchase.

If you're frustrated, you're not alone.

A survey by Bankrate. Found that a third of people are annoyed by those pre-entered tip screens and think tipping culture has gotten...

Out of control.

Businesses and cities have tried to move away from tipping, but...

I don't see any kind of a future where tipping completely goes away.

That's Mike Lynn, a Cornell psychologist who studies consumer behavior.

I've done more research on tipping than anybody else.

And he'll help us explain why the US became so dependent on tipping, why it seems to be everywhere now and why we're probably not getting rid of it.

Tipping really became popular after the Civil War.

When formerly enslaved black Americans went into service positions like waiters and railroad porters.

And the railroad industry deliberately paid them low wages on account of their ability to work for tips.

And arguably it was this influx of service workers who were receiving low wages that contributed to the growth of tipping.

By the early 1900s, as minimum wages were being established, tipped workers were initially excluded,

until 1966 when tipped workers were given their own minimum wage. It was raised to $2.13 in 1991 where it stayed ever since.

Consumers in this country are aware that servers make a substandard minimum wage and that contributes to their willingness and desire to tip them.

Some states require employers to pay just that tipped minimum wage to workers where some states like California and Minnesota require them to pay workers the full minimum wage and then tips are added on to that.

And those minimum wages affect how people tip.

I was able to get data from credit card payment system providers on charge sales and charge tips in restaurants across states.

And what I find is the smaller the wages, servers are paid the higher the percentage tip.

In other words, he found that people know their tips are how workers get paid.

So they tip more when they know workers are being paid less.

In that same Bankrate survey, 41% of people said businesses should pay their employees better rather than relying so much on tips.

But in practice, people don't like that.

I've done the research where I give people hypothetical menus.

One where they have regular prices, and at the bottom, it says a customary tip of 15 to 20% is appreciated.

One where they say tipping is not allowed, you can't tip but their menu prices are 15% higher.

He then asked people how expensive they thought the restaurant was.

People overwhelmingly thought the menu with the 15% higher prices was more expensive than a menu where they would tip 15% or more anyway.

Other menus that stated in 18% or 15% gratuity would be automatically added were also viewed as more expensive.

We're not rational, we're cognitive misers.

We don't like to add all of the factors together and make logical rational comparisons.

We do quick and dirty heuristics.

It's called price partitioning.

You see it with hotel listings or concert tickets with all kinds of fees tacked on at the end.

Partitioning prices often makes things seem less expensive than if you were to build all of the cost and be upfront in one big price.

Which is one of the reasons you're seeing tipping just about everywhere now.

Post-COVID, we've experienced inflation and full employment and service establishments have to compete for employees which means paying them more,

but paying them more requires them to raise prices and customers are already facing inflation, and so what's a business to do?

And I think that tipping is a way to address that problem, a good faith effort on the part of businesses to say, I need to pay my employees more, but I don't want to raise my prices too much on you guys.

So, are people really tipping 20% for self-service or counter-service?

According to that Bankrate study, the vast majority of people are still always tipping servers or waitstaff at a sit-down restaurant.

From what we've learned from Dr. Lynn's studies, probably in part because they know those workers depend on tip.

But when getting coffee, not as many; when picking up take out, even fewer.

So just because someone's asking for a tip doesn't mean it's customary, doesn't mean everyone else is giving.

The new technology kind of hides from us what the actual behavioral norms are.

Tipping was seen as un-American even in the 1800s.

In the 1900s, polls showed Americans wanting to get rid of tipping.

Today, two-thirds of Americans have a negative view of tipping, but it's so ingrained into American price models and policies that tipping is probably here to stay.

But where and how much you tip is still up to you.