Nudges as Norms: Evidence from the NYC Taxi Industry

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.

Keywords: Defaults, Tips, Suggestions, Norms, Tipping

JEL Classification: D12, L92