It is distinguished from a bribery system in the sense that it provides the "spark to motivate, stimulate, move, and encourage workers to strive for a personal best.
Extrinsic motivation refers to individuals changing their behavior in order to meet an external goal, or receive praise, approval or monetary rewards.
Incentives act as extrinsic motivators, providing external ‘purpose’ to an individual, which has been key to developing a person's psychological health and wellbeing.
For example, Wikipedia editors have an intrinsic incentive to contribute to the website as there is no financial reward but instead altruism, recognition, and reciprocity.
Psychological/Behavioral incentives refer to “external stimuli, such as a condition or object, that enhance or serve as a motive for behavior.” These are influenced in accordance with Bandura's Social Cognitive Theory.
However, while Bandura's theory allows us to draw links between social learning and incentivization, it does not consider ‘human agency’, which suggests that people are consciously able to affect their willingness to engage in behavior.
An incentivization strategy can leverage an existing system of measures to address interrelated issues such as those involving risk, cost, and performance if done correctly.7 This can be adopted in multiple fields.
Through an evolutionary lens, it is known that human beings developed brain mechanisms that alter the direct functions of the visceral body.
Therefore, people are more likely to consider incentives when their Amygdala is not functioning at an optimal level, as their ability to regulate emotions is limited.
Essentially, a change in Amygdala activity impacts our likelihood of undergoing ’Vicarious Reinforcement.’ Behavioral economics highlights that humans have two cognitive systems.
[14][15][16] Researchers have also randomized workers across cultures to complete work tasks with piece rates for performance or fixed pay.
Across cultures, paying for performance increased effort, but the effect of money was larger in the US and UK than in China, India, Mexico, and South Africa.
[20] Some of the most influential cultural factors on adopting incentives include in-group collectivism, performance orientation and uncertainty avoidance.
For example, individual prizes as incentives cater towards more individualistic societies, whereas rewards that can be shared amongst an in-group are more suited to collectivist cultures.
[21] Cultural value systems are also important to consider when incentivizing individuals, as certain forms of incentives may be more suited than others.
For example, individualistic societies are likely to be affected more by extrinsic motivators such as recognition as opposed to collectivists, who seek sense of purpose or the fulfillment of learning/achieving goals.
Ultimately, it is a combination of Hofstede's cultural dimensions, such as power distance, masculinity and uncertainty, alongside biological and cognitive factors, which explain incentivization.
[13] The importance of context is enhanced as people understand the monetary value of categories (salary, savings, expenses) differently.
The same extrinsic incentives create different responses in people, depending on how they understand, value and organise their money.
People overemphasise small probabilities which means incentives may be skewed and based upon unrealistic expectations.