If you drive a taxi, it makes financial sense to overcharge customers

 In Insights, Life decisions, Realizer Blog, Science

Here are some of the ways taxi drivers have tried to overcharge me over the years.

In china, a taxi driver had a meter that was rigged to make sudden jumps: 8.40, 8.50, 8.60, 9.20, 9.30, 10.50

In sydney I’ve had cabs set the meter to the night rate (+20%) in broad daylight.

I’ve had people charge fictitious tolls, drive round in circles, round up the fare by the odd $10 at the end and ask for a flat fare up front.

The thing is, moral scruples aside, from a purely economic perspective there is lots of upside for these drivers and minimal downside.

The worst case scenario is that someone notices, has a bit of a go at you, you protest “I’m a new driver” and you get the same fare you would have got honestly. Zero downside, apart from a bit if embarrassment. Highly unlikely that someone will report you to the authorities.

So it makes economic sense to cheat.

What about the rest of us? Well a series of studies by Dan Ariely looked at how many people cheat in exams if they are given the opportunity. He found that the majority of people cheat a little bit if the conditions are right and it’s very unlikely you’ll get caught. He thought he’d find a group of people who cheated a lot and a group of people who didn’t cheat at all, but no, most of us give into temptation.

In fact if you’ve ever taken a bit of stationery home from work, or been given too much change in a restaurant and not handed it back, or used someone else’s butter in the work fridge, or ever found $5 in the street and not taken it to the police then some people would questions those morals.

So what shall I do about the cab driver who tried to overcharge me on the way to the airport this morning? Shall I try to change his incentives by taking the time to report him to the cab authorities? Or shall I say, well he’s only human and its not like I’ve never ever cheated in my whole life?

Please let me know: what you would do?

Posted by Rob Pyne