The Economic Value of Norm Conformity and Menu-Opt-out Costs

This paper theoretically and empirically analyzes the trade-offs between consumption versus norm conformity and choosing from a menu of default (pre-selected) options versus opting to compute a preferred non-menu choice. In the theoretical model, peoples’ choices depend on “intrinsic” utility (consumption), norm conformity, and menu opt-out costs. First, I empirically estimate the model using passengers’ tips sampled from 863 million NYC Yellow taxis rides and find that the costs of deviating from the norm tip and opting out of the default tip menu are large relative to the taxi fare. Next, I evaluate the stakes, menu, and context-dependence of the norm tip and norm conformity by exploiting quasi-experimental variation resulting from changes in the fare, the default tip menu, and analyzing tipping behavior when passengers travel: (1) alone versus with co-riders, (2) under bad weather conditions, and (3) during the gift-giving season. I then analyze the welfare implications of norm conformity and default menus.