New York's Taxis and the Power of the Nudge

An NY Times article illustrates the large effects that can accumulate from small nudges that influence behavior:

[T]he back-of-the-cab swipe has emerged as an unlikely savior for New York’s taxi industry, even as other cities’ fleets struggle to find fares in a deep recession.

Overall ridership and revenue have increased. More and more fares are being paid with credit cards, even for shorter rides. And tips for drivers, usually an early casualty of tough times, are up sharply, double over the pre-plastic days.

The increase in tips, however, may have less to do with New Yorkers’ generosity than with the preset amounts suggested to passengers on the taxi’s software systems. In many of the city’s cabs, riders are offered options for their tip depending on the length of the ride. For fares under $15, a screen prompts tips of $2, $3 or $4; the numbers can range from 15 percent to 30 percent for higher fares. The presets are used about 70 percent of the time, according to industry estimates.

This perfectly illustrates the notion of giving people “nudges” - little hints about how to behave - and how influential this can be, even when it’s quite transparent as in this case.

The key was making the credit card experience much easier than the usual pain-in-the-neck that it is in other US cities, where the driver reluctantly drags out an old-school mechanical swipe reader, or rubs your card with a pen on a carbon paper receipt.

Although New York was late to bring credit cards to cabs, it leapfrogged ahead by pioneering a customer-friendly system that required no signed receipts, no minimum payment and an interactive device that let passengers swipe the card and add tips themselves.

This has opened up credit card use for short trips. Like Las Vegas’ use of chips, the detachment from physical cash “lubricates”, shall we say, people’s willingness to part with their money.

Once considered a convenient payment method for longer trips, often to the area’s airports, credit cards are now being used for shorter, cheaper rides, the type of $5 rainy-day indulgences that were once handled exclusively with cash.

Amos Tamam, president of VeriFone Transportation Systems, whose card readers are in 6,700 cabs, or about half of the city’s fleet, said his company’s average credit-card fare is now less than $15, down from $16 a year ago.

“The more usage you get with credit cards, the lower the average ticket is going to go,” Mr. Tamam said.

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