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Journal number 2 ∘ Joseph ArchvadzeLia Kurkhuli
Phenomenon of Giving a Tip: Economic and Psychological Aspects

https://doi.org/10.56079/20222/12

 

Despite the fact that a person is a rationally thinking being, he often shows activities that do not meet the criteria of rationalism, rational use of resources. Such irrational activities are based either on the mental structure and addictions, on the irrational motivation (the use of tobacco and drugs, usage of alcoholic beverages, etc.), or on the stereotypical model of behavior that prevails in society, which often do not fit within the framework of economy and expediency. One of these is "To give a tip".

      Tip is the money that a person pays additionally for the service offered him. The tradition of giving a tip comes from those countries and societies where, as usual:

a) the market economy is sufficiently developed;

b) the middle class is quite numerous, and its financial situation and well-being is more or less satisfactory;

c) the services are massively used by representatives of average and above-average income both in this country and in other states (tourists and visitors).

In fact, the act of giving a tip consists of economic, psychological and social components and represents a kind of subculture of established social relations, traditions, etiquette and informal norms of behavior.

Tips are set in two ways:

a) as a percentage of the cost of service and is linked to the amount indicated on the invoice (reckoning). - This percentage varies by country and is influenced by national characteristics (traditions, mentality, forms and norms of social relations, standard of living, culture - household and payments, etc.), which are not directly related to the ratio of supply and demand for services and related transaction costs.

b) a specific amount for certain services. Remuneration in this form, as usual, is extended to one-time and time-limited services (luggage delivery, escort to a hotel room, to a place indicated on a ticket in a theater or cinema, etc.), its amount is limited to several units of currency (as usually within 1-2, and in 5-star hotels - 5 dollars).

The presence of the institution of giving a tip is not only informal, but also a twisted and unnatural form of the economy.

   Different economic entities (government, owners of service facilities, customer service entities and customers themselves) do not have identical interests and attitudes towards tips.

The government has a negative attitude towards the existence of tips, because its existence contributes to a decrease in state budget revenues. – At this time, the turnover is artificially reduced in terms of the cost of services performed, which, accordingly, reduces VAT (Georgia, EU) and sales tax (USA).

From the point of view of the owner of the service facility, the existence of tips is beneficial, since it makespossible to pay less to the employee and, accordingly, reduce the cost of the menu.

    Most people in the service industry feel comfortable where the giving tip culture is flourishing, as it provides an opportunity to earn additional income. Moreover, the presence of such a tradition largely determines the social prestige of such activity.

As for the client, the condition for giving a tip for him is:

a) His social status - I overpay because I want to point out my social status and its prestige, that the tipper deserves special attention and privileges from the attendants;

b) Reputation status- Only because it takes into account and respects the norms accepted in society, that it is so accepted in the indicated place and for the indicated service (for example, in a restaurant or at a car park). – Giving a tip is carried out only so that the client maintains his reputational status - they do not consider him a miser, a loser; do not become the addressee of negative emotions of service personnel;

c) Satisfaction and pleasure derived from its service - An expression of gratitude to the service personnel in a situation where the quality and efficiency of service caused sincere satisfaction and pleasure.

The social scale and size of tips are largely determined by the economic development of society and the purchasing power of the population.

   The existence of the tip institution provides a number of social benefits (improving the quality of services, increasing profits, reducing transaction costs and the tax burden), but these preferences can also be provided by purely economic methods and incentives. At the same time, the relationships that develop with tips, showing mercy and giving alms and charity create an “irrational triad” that do not fall under economic rationality, but are quite explicable by the formed social norms of modern civilization.

 

Keywords: Tipping, service, client, social norms, gratitude.

JEL Codes: L84, M20, M21