Reversing the denomination effect in tipping contexts

Abstract

AbstractAmerican consumers tip $36bn annually, predominantly using small sums of cash. Yet, little is known about how the denominations of cash affect tipping behavior. In contrast to existing findings on the spending of different denominations (i.e., the denomination effect), we posit that consumers are less likely to tip smaller (vs. larger) denominations (e.g., $1 in 4 × 25¢ coins vs. a $1 banknote) to the same total value. We term this the “denomination‐tipping” effect and predict that it occurs because it is more embarrassing to tip with smaller denominations than larger denominations. Consistent with this prediction, we find across one field study and four online studies (N = 1402) that consumers are less likely to tip smaller (vs. larger) denominations, and that this “denomination‐tipping” effect is mediated by feelings of embarrassment regarding tipping smaller denominations. Our findings add to the literature on how cash denomination affects consumers' usage of money in the context of tipping, and we provide practical guidance on how service providers can minimize the adverse impact of smaller denominations on tips to their service staff.