Tips and bonus

When you dine out in a restaurant, usually you have to pay tips on top of the amount on the bill. The original intention of paying tips is to reward good service. However, tipping slowly deviated from its original intention and no longer correlate to the service level. Most people just pay the same amount of tips regardless of the service they receive. Tipping becomes a hidden cost not shown on the menu, so the food appears cheaper to the customers. The restaurant owners can pay less to the waiters and the wage is made up by the tips from the customers. The waiters forgot the meaning of tips are really gratitudes, now they take it for granted they will receive tips from customers. Some places even listed the required amount of tips on the menu as service charge and printed it on the bill. The effectiveness of Tips has changed from positive reinforcement to negative reinforce. You no longer get better service for paying tips, instead you will guarantee a bad service next time if you didn’t pay enough tips. In another word, as long as you won’t visit that restaurant again, you don’t have to pay the tips. There are other subjective factors that make people pay tips, such as saving face, politeness or simply don’t want to deal with troublesome waiter in case he ask for tips. There is no objective benefits paying tips to restaurant you never go again. In game theory, this is the difference between one-time games and repeat games.

There is objection to my argument for not paying tips by making an analogy of tips to bonus. Actually, game theory can apply to paying out bonus. Most people think companies pay bonus to its employees to reward good works, but never ask the question why they have to reward good works. The company reward good works because it give incentive for more good works. No company will ever pay bonus to the employees if they are going to be laid off, it is just a waste of money. Although the amount of the bonus each receives is judged by work in the past, but it is really as investment in human capital for the future. In term of bonus, rewarding good work is just a mean, stimulating more good work is the end. When tipping fail to stimulate good service, then there is no need to paying tips.

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