This Matt Yglesias post has already made it on to my colleague Andy McLennan’s door. It’s short enough to quote in full
I’m not sure I understand why Greg Mankiw thinks economists “don’t understand tipping.” When I was learning economics, I learned that people are utility-maximers and that whenever you see some behavior that doesn’t seem explicable in purely financial terms that must be because people are deriving utility from the foregone financial advantage. Thus, as any economist could tell you, people tip because of the utility they derive from the tipping in much the way that economists can explain all aspects of human life.
Have I ever mentioned that philosophers tend to think that economics is vacuous? Which isn’t to say that you shouldn’t listen to economists. These days, they tend to know a lot of math, and math is a very useful thing.
Matt omitted the irony alerts, but I tried to spell out the same point here.
Given any data on any observed set of problems involving the selection of one or more choices from a set of alternatives, the observed choices can be represented as the maximisation of an appropriately specified function.
Playing straight man to Matt, that doesn’t mean utility functions are useless – the functional representation lets you do lots of math that is much harder if you try to work directly with preferences. But any competent economist knows that utility isn’t an explanation of observed choices, it’s a way of representing them. The representation is simpler if choices satisfy some minimal consistency requirements, like transitivity (if you prefer A to B and B to C then you should prefer A to C).
The only place where I routinely encounter the confusion between substantive predictions about behavior can be derived and the observation that all choices maximise some kind of utility function is among adherents of the “rational choice” school of political science. As mentioned above “rational choice”, as described here, is essentially a tautology. More importantly, perhaps (and unlike the situation with most market interactions) crucial aspects of political behavior can’t be explained in terms of rational egoistic choice. Most obviously, voluntary voting doesn’t make sense for an egoist, since the probability of being decisive is so low as to ensure that no private benefit from one outcome or the other can be worth the effort. In my experience, rational choice fans often want to explain voting by arguing (correctly) that rational choice can encompass any preferences, including altruistic or expressive preferences, then go back to claiming that rational choice models yield substantive predictions (which can only be obtained by surreptitiously disallowing any preferences except egoistic preferences).
John Quiggin 
I’d explain tipping as hedonism guilt. It’s a sidepayment for the attender observing good times without taking part, particularly if they are low paid. No doubt some kind of multivariable utility function could show the required behaviour. It also may also explain a phenomenon discussed here before; why we should pay the Indonesians not to cut down trees. Whether it has ecological merit or not it assuages our guilt, a little something to help share the burden.
I see tipping more as a means of ensuring better service next time. That an externality is involved does not worry me.
Also, it is culture and location dependent. My use of tipping is Australian in context.
Use of the term ‘math’ indicates that Yglesias is writing from a US prespective where tipping is far less a reaction to a given quality of service than an expectation. Where I currently live, the eateries and tourist authorities etc actively discourage tipping.
Coming back to JQ’s theme, tipping in the US for me has no positive utility per se – it is a social obligation, and to fail to tip has a high negative utility. It is a least worst solution.
In Australia, I view it as encouraging an even better time (in future) than I had this time, not to compensate someone who is already being paid to help provide that service. It’s inefficient, but about the only way I can intervene in that market.
I had some questions about this topic this thread. My confusion was over the relationship between utility and rationality. Professor Quiggin says that the utility function is not an explanation of choices made but a way of representing them, which seems to make sense, as it leaves out the whole difficult question of whether or not the choices are ‘rational’.
If a utility function is just a symbolic representation of choices that have been made, then to say that it has predictive power seems to assume that people behave consistently across time. I guess this is usually an okay assumption to make, and as a consequence one might choose to define rational behavior as consistant behavior. So if I prefer apples to oranges and oranges to bananas, it would be ‘irrational’ of me to choose a banana over an apple. But in the case that I did so, it would obviously mean that my preferences have suddenly changed, and therefore to define a rational choice as a utility maximizing one is meaningless.
Regarding tipping, I would tip if I thought that not tipping would result in my being negatively percieved as a tightwad (I guess the expectation of future service might also be a factor, but for me the way others percieve me would come first).
Thus if I was in a culture where tipping was customary I would and if I was in a culture where tipping was not customary I wouldn’t. All else being equal I would prefer to live in a country without this custom, as I (being both careful with money and sensitive to the feelings of others) would be expending a lot of emotional stress wondering whether I was tipping too much or not enough, and what was appropriate in what circumstance. This would be relieved if I knew of some conventionally acceptable amount to tip in any given situation – information that I’d have to seek out somewhere (I remember that Seinfeld addressed this problem). Then this amount could be adjusted according to the service recived, but once again, the question arises of what is a proportional amount by which it should be adjusted? And the perception of others presumably wouldn’t take into account the tipper’s wealth and the relative cost involved to them. All in all, for these reasons I think it is an unpleasant custom and I’d much prefer to live somewhere where it wasn’t expected. The interesting question which I don’t think that symbolic utility representation can adress is why such customs differ between cultures the way they do.
Some people’s utility function might be consistent over time but I think not many at all. Beer for breakfast, anyone? If we actually had “consistent” utility functions the whole mess would have been sorted out long ago.
This doesn’t mean there isn’t utility functions just that they’re pretty wild beasts. Claims that it’s something reducable to something nice and simple like rational hedonism, or whatever, fall apart very quickly on a precursory look for counterexamples. Which is consistent with modern brain research that finds our brains are complex amalgamations of different parts with wildly different capabilities and intents, all jostling for control. Expect inconsistency.
There must be some commonality in our utility functions or advertising agencies would run out of expense accounts next Friday. But even these super-smarts don’t expect to get 10% success rate on anything.
Ditto, don’t expect a magic bullet explanation of tipping.
I’m not sure why you are so against rationality in all situations — it isn’t neccesarily tautological. I think its fairly clear that there are certain problems where the “correct” answer can only be learned — that is, the correct answer can only be derived based on logical rules (which I am assuming are in the definition of “rational” behvaior), so its possible for one group to show such behavior and another group not to (hence no tautology). Its therefore completely possible to assume a “rational” position and a “non-rational” one. (whether people are typically in this state is a different question)
I think the work by Cosmides and a few others looking at cultural effects on the understanding of rules does this — only certain groups (i.e., ones with a Western style education) are able to give the answer to certain logical problems. This seems a lot like an example of the application of rational behavior in one group and not another to me.
I think it’s tautological to define rational behavior as ‘utility maximizing’ behavior. But that doesn’t mean there’s no such thing as rationality as based on logic. However the utility maximizing definition of rationality doesn’t cover behavior based on logical rules it only covers behavior based on satisfaction.
One can say that one person may get so much satisfaction from behaving in an illogical manner that it is ‘rational’ for them to behavor illogically, this is meaningless, since the ‘utility maximizing’ explanation can conceivably cover any possible decision a person makes.
Neat post. I reconcile the rational voter paradox on the basis that most people think their vote matters. When I wrote a post last year estimating that the probability of a decisive vote in Australia is 1/4500, several commenters demurred. Whenever I discuss this with non-economists (including well-educated ones), they really do seem to think that there’s a non-trivial chance their vote will be decisive. My guess is that if more people understood probability, support for compulsory voting would be lower than it is today.
Voting makes sense from a rational perspective. Sure, my vote has vanishingly small probability of being decisive. But if everyone who holds the same political views as me chooses not to vote on the basis that they’re unlikely to be decisive, we’ll all be doomed to travel ever more rapidly down the road to serfdom. So I better get out and vote.
And if utility doesn’t explain preferences, how do you explain money? Money is a good (monotonic) proxy for utility. Of course the relation between preferences and money is not perfect, and hence the relation between utility and preferences is also imperfect, but if there was no consistency between utility and preferences then money could not exist.