Master Thesis: Economics and Business Economics Specialisation: Economics of Markets, Organizations and Policy An Empirical Study of Group Psychology and its Economic Effects on the Restaurant Gratuity Market

Tipping is a mysterious phenomenon, being one of the few economic transactions which happens voluntarily, it globally takes different forms due to international and cultural influences. This paper combines an extensive literature study in the fields of economics and psychology, with thorough empirical research on tipping behaviour, to analyse this phenomenon. Investigation into the domains of conformity, herding behaviour, information asymmetry and reciprocity, allow for a broad perspective on the research that is done on tipping behaviour. Together with the various theoretical domains, tipping behaviour is empirically investigated in this paper using self-collected questionnaire data from 1000 customers at a specific Dutch restaurant. While the theoretical literature on tipping behaviour predicts that ‘group psychology ’ has a strong effect on tipping behaviour, the results of this paper suggest that the amount of tipping by an individual is not significantly influenced by group membership. However, the level of service, the total bill, and the ability to declare the bill, are all significantly related to the amount of tipping. The results of this paper also depict that the Dutch customers base their tip to a larger extent on the actual perceived service than on a specific tipping norm. This suggests that the level of service is much more important in countries which are not restricted by fixed tipping norms, than in nations where this is the case. Hence, the individuals tipping behaviour is strongly influenced by culture as well as by socially accepted norms and traditions