Why our brains get this wrong
In 1986, Daniel Kahneman, Richard Thaler, and Jack Knetsch published a landmark study on fairness in The American Economic Review. They found that people anchor strongly on reference prices — the number they see as the “real” cost.
When you look at a bill showing $60, that becomes your reference price. The $100 original value fades into abstraction. Your tip calculation follows the concrete number, not the service reality. Kahneman and Tversky’s prospect theory (published in Econometrica, 1979) adds another layer: the “savings” from a Groupon register as a gain, but tipping more than the standard percentage on the discounted bill feels like a loss — giving up part of your savings.
2xlosses hurt more than equivalent gains feel good (Kahneman & Tversky, 1979)
r = 0.11weak correlation between service quality and tips (Lynn & McCall, 2000)
37%more ordered when splitting equally vs. paying individually (Gneezy et al., 2004)
Loss aversion — the finding that losses hurt about 2x more than equivalent gains feel good — pushes diners toward the lower tip. Your brain frames the “extra” tip as money you’re losing from your discount savings, rather than what it actually is: fair compensation for the service you received.
“The reference transaction provides a basis for fairness judgments… consumers evaluate outcomes relative to reference points, not in absolute terms.”
Kahneman, Knetsch & Thaler, The American Economic Review, 1986
This isn’t moral failure. It’s cognitive architecture. But awareness of the bias allows us to correct for it — the same way understanding mental math limitations helps us build better systems for splitting bills.
Sources: Kahneman, Knetsch & Thaler, American Economic Review (1986); Kahneman & Tversky, Econometrica (1979); Gneezy, Haruvy & Yafe, The Economic Journal (2004)
