Economists have often wondered why people tip.  We have lots of sophisticated explanations for why rational (i.e. selfish) people pretend to be altruistic.  A leading explanation, the reputation model, relies on some repeated game concern but how would that apply in a one shot waiter game?  The puzzle is, of course, easily resolved if one allows homo economicus to have a heart. Warm, mushy feelings for waiters can easily explain tipping, even if you both know your relationship is the restaurant equivalent of the one night stand.

As our well-educated and well-read readers know, the heart is a complicated thing and often responds to incentives in odd ways.  Larry David is the dark Jane Austen of our cynical time and his (second!) magnum opus, Curb Your Enthusiasm, is the warped Sense and Sensibility.  I enjoyed the Seinfeld non-Reunion episode.  There were so many treasures in one half hour but the business lunch between Larry and Jason Alexander was my favorite bit. Larry and Alexander go dutch and Larry suggests they coordinate the tip.  He wishes to avoid the embarrassment of under-tipping.  It is just obvious to Larry that other people’s opinion matters so he must tip.  Note it is not morality but image and hence self-image that guide Larry.  He certainly does not want to tip low when his Dutch partner tips high.  But if your partner tips low, there is still an incentive to tip high, because it is quite natural that you want your image to be better than your partner’s.  In other words, there is a dominant strategy to tip high…a Prisoner’s Dilemma of tipping. Once we open up the heart of homo economicus, not only is there an incentive to tip, but to overtip.  No wonder Larry wants to collude and coordinate tips.

How does it all work out? I don’t want to give any more away than I already have.  I’ll let you watch the episode and enjoy it for yourself.

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