Why Tips for New York City Taxi Drivers Doubled Overnight

How many decisions do you think the average person makes every day?

Would you have guessed 35,000?  Well, it’s true. That’s a lot and it impacts our lives in ways we will never truly be aware of.  

Just to wade through this ocean of choice and make it through each day requires the use of time-saving mental shortcuts called cognitive heuristics.

Heuristics help people simplify decision making by eliminating the need to conduct cost-benefit analyses for every decision. Instead, we can simply use a mental shortcut.

On a daily basis, these mental shortcuts help us make hundreds of decisions, and can make brands a lot of extra money if they are understood and triggered correctly.  

But how exactly does that happen? Let’s hop into a Yellow Cab taxi and chat about it.

Heuristics Increased Tips for Taxi Drivers

Before 2010, New York City taxi drivers were earning tips of 10 percent on average. You’d tell the driver where to take you, he’d get you to your destination, and you’d give him the fare plus a modest tip in the form of cash.

But then something happened. Almost overnight, the tip percentage more than doubled for New York City taxi drivers. Why did this happen?

Was it a booming economy?

Nope, we were still in the middle of the Great Recession.

Did the taxi drivers take a customer service training program?

No, they all had the same terrible service they always do.

Did the taxi companies set up an ad campaign to tip drivers better?

Absolutely not.

The real answer was simpler. The taxi companies put credit card readers into their cabs.  And these readers, unbeknownst to the cabbies, were designed to double their tips almost overnight.  

When it came to tipping the driver at the end of the ride, the new credit card readers highlighted three choices on the screen, in this order:

  • Add 15 percent tip

  • Add 20 percent tip

  • Add 25 percent tip

Now, let’s be honest. The vast majority of people can’t easily calculate a 15 percent tip on a $13.00 fare and make change—it’s a lot of effort! But you know what isn’t a lot of effort? Selecting the middle tip option out of three presented on a digital screen.

Here’s why: with the driver right there in front of you, you often feel uncomfortable choosing the lowest amount (I mean, the guy is right there!), and most would agree that a 25 percent tip for a New York City taxi driver is a bit excessive.

So what do you do? You do what is mentally easiest and deemed fair. You simply hit the middle button which activates at least three cognitive heuristics that make the choice easy.  That’s the real reason why tips doubled overnight.

It wasn’t because of a slick advertising campaign, and it wasn’t by convincing passengers that taxi drivers were now worthy of this level of a tip. And it wasn’t a result of building an emotional connection with these drivers either.

It was a simple matter of using behavioral economics to design a really smart choice architecture that made higher tipping mentally easier for passengers. And it just so happened to be double the normal tip. Now, that’s behavior design.

Instinctively choosing the middle option reflects the power of cognitive heuristics. They are quick mental shortcuts used by everyone to make decisions easier. It’s not the highest tip amount. It’s not the lowest amount. It’s the middle option. Thanks to cognitive heuristics, the middle option often feels like the safest, best decision.  

This is the power of behavior design.  It opens up a brand new tool-kit for marketers to consider in their jobs.  To not ONLY build brand preference, but ALSO to drive consumer choice. Yes you can spend money on equity advertising to convince people to buy your brand. But behavioral design allows you to scientifically drive consumer choice - like selecting the middle offer - by focusing on how brand choices are presented in the first place and what you should do to advantage your brand in that choice set.  

And if you’re not considering the power of behavior design in your marketing, you’re leaving a lot of tips on the table.