Incentivisation

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Incentivisation or incentivization is the practice of building incentives into an arrangement or system in order to motivate the actors within it. It is based on the idea that individuals within such systems can perform better not only when they are coerced but also when they are given rewards. [1]

Contents

Concept

Incentivization aims to motivate rather than encourage enthusiasm so that individuals perform better. 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." [2] As a result of this motivation, it is proposed that incentivization can improve the efficiency of different systems. Incentivization follows certain notions proposed by psychological theories such as Self-Determination Theory, [3] which highlights both extrinsic and intrinsic motivation. Incentivization highlights human behavior in response to factors which impact our extrinsic motivation. 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. [4] This is different to intrinsic motivators, which are based on self-interest and are exempt from external pressure. 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.

There are different types of incentives that should be accounted for incentivization strategies. Economic incentives account for the material gains or losses, whereas social incentives account for reputational gains or losses. 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. [5] Bandura's theory suggests that we are likely to produce behavior when we are motivated to do so. Incentives are developed through social learning, for example, ‘vicarious reinforcements’, which refers to when an individual observes a ‘role model’ receiving positive reactions to their behavior and ‘reinforce’ why they must replicate this behavior. Vicarious reinforcement involves people developing incentives through empathizing and feeling people's behavior. [6] For example, a student may observe a teacher praising a classmate for exceptional creativity and will be incentivized by that praise to recreate/imitate that behavior. 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. Therefore, biological and cultural explanations are further needed to substantiate this notion.

It is important to understand which type of incentive motivates the target group of an incentivization strategy. For instance, exposure to extrinsic monetary incentives may counteract other incentives/motivations and lead to less overall interest in the task. [7] In cases like this, incentivization backfires.  

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.

Biological Psychology of Incentivization

An individual's response to incentivization appears to be controlled by the ventromedial prefrontal cortex. [8] The brain can express a decreased response to incentivization after experiencing damage to or near the nucleus accumbens. However, people may become more sensitive to incentives when there is damage to the subgenual ventromedial prefrontal cortex. [8]

The biological approach to incentivization is linked to biological explanations regarding human extrinsic motivation, emotion and learning signals. Firstly, we can attribute the majority of learning signals to mechanisms occurring within the visceral body. Through an evolutionary lens, it is known that human beings developed brain mechanisms that alter the direct functions of the visceral body.

An example of this is the Hypothalamus, [9] which slows down metabolism in order to maintain ideal homeostatic levels. If this mechanism is weaker in certain individuals, they are more likely to feel a lack of motivation and less affected by incentives. Through maintaining body homeostasis, individuals are able to get through their day feeling less lethargic, bored and distracted. [10] The hypothalamus is linked to the aforementioned nucleus accumbens.

The ventromedial prefrontal cortex regulates the activity of the ‘Amygdala’ within the brain of an individual. [11] The Amygdala is involved in both emotion activation and stimulus/re-enforcement learning. 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. This is due to research suggesting that the Amygdala allows for” stimulus re-enforcement association information”, [12] which suggests how likely we are to turn our extrinsic motivators into incentives. Essentially, a change in Amygdala activity impacts our likelihood of undergoing ’Vicarious Reinforcement.’

Behavioural Economics of Incentivization

Behavioral economics highlights that humans have two cognitive systems. One is automatic and the other is reflective. The reflective system is seen as more rational and/or cognitive. It is more controlled, effortful, rule-following, self-aware and deductive. [13] The reflective system allows us to analyse available information as well as the incentives offered to us to act in their best interests. This contrasts with the automatic system, that takes short-cuts, uses heuristics, and biases. The two systems are also commonly referred to as the 'Fast and Slow' systems of thinking, with the reflective being ‘slow’ and the automatic being ‘fast’. Incentives change behaviour by changing people's minds. Once the possible rewards are highlighted, the reflective system weighs up the revised costs and benefits of our actions and responds accordingly.

Cultural Approach of Incentivization

Research has shown mixed results regarding the impact of cultural practices on the effectiveness of incentives. Institutional Theory [14] and Hofstede's cultural dimension theories [15] have suggested that ’national culture will moderate incentive effectiveness. However, certain research has suggested that there is a weak relationship between the two. [16]

Some of the most influential cultural factors on adopting incentives include in-group collectivism, performance orientation and uncertainty avoidance. However, the most detailed cultural explanation refers to the ‘individualism vs collectivism’ debate. In certain cultures, individual success is highly valued and sought after, whereas in others, the collective success of the group is prioritized. This may affect the way incentives are framed, received and acted upon. 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. [17]  

Cultural value systems are also important to consider when incentivizing individuals, as certain forms of incentives may be more suited than others. For example, in collectivist cultures, while monetary gains are important, they do not hold as much weight as social reputation within the in-group. Therefore, social incentives such as praise or social status approval may be more beneficial to the individual than receiving funds. [18] Lastly, cultural dimensions may affect how we are motivated by incentives. 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. [19] However, if we think critically, suggesting one cultural dimension is responsible for incentivization is a far too reductionist statement. 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.

The Effectiveness of Incentivization

These factors should be considered when devising or analysing an incentivisation strategy.

Framing

How an incentive is presented and framed is important. [20] This is known as the choice context and is commonly referred to as the choice architecture. For instance, if in a given context, information is low about how fun a specific task is, by offering a respective amount to complete the task, people might think that the task is unenjoyable and this incentive would fail.

Loss Aversion

We dislike losses more than we like gains of the same value. Individuals respond more strongly to losing something they value than being given a reward of equivalent value. This is known as loss aversion. A weight loss programme asked some participants to deposit money that would be returned to them if targets were met- those that did this lost significantly more weight than those who did not. [13]

Human's Mental Budgeting

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. [13]

Type and Size of Incentives

The impact also depends on type and size of the incentives. [13] In terms of size- paying a high reward on the successful completion of a task could make the participant anxious about completing the task and reduce their ability to do so. [20] The concept section discusses that economic incentives must be matched with suitable tasks and audiences.

Timing and Frequency of Incentives

In terms of timing- the value of rewards may change over time and in different situations, meaning the value of an incentive can too. The frequency of incentives is also important and can impact the effectiveness of incentivisation. Changes in behaviour may reverse back to their original form if one-off incentives are used. This is because they can condition us to behave in the new way only if we are rewarded. [21] If the rewards stop, the new behaviour can also stop.

Incentivisation tends to be more effective at forming permanent habits if they only reward us sometimes. [21] On this note, incentivisation can be likened to operant conditioning, the association of a voluntary behaviour with a consequence. Take the example of someone receiving pocket money. When this money is given at a set specific time, every week for example, or is guaranteed every time a behaviour is expressed, it becomes expected. If money is given only sometimes when the behaviour is expressed, the individual is unsure whether they will receive a reward, which makes performing the behaviour more exciting- like gambling. This is why incentivisation can be more effective when rewards are random.

Overemphasis of Small Probabilities

People overemphasise small probabilities which means incentives may be skewed and based upon unrealistic expectations. [13]

Payoff Timing

We prefer immediate payoffs rather than distant ones, even if the immediate payoffs are smaller than the distant ones. [13] People would rather avoid the short-term pain of diabetes blood test rather than the long-term health gain. [21]

Criticisms

The incentive theory of motivation (incentivization) is criticized by psychologists for not being able to explain when individuals carry out behaviors despite their being little to no incentive to do so. For example, a worker who works extremely hard but for a small salary. It also fails to explain situations whereby instead of an incentive, there is rather a threat in place, for example, going outside during a natural disaster in order to help others.

Secondly, incentivization assumes that at any given point, an individual will be entirely extrinsically motivated, or if they do not react to incentives, entirely intrinsically motivated. It does not consider the cases where individuals are engaging with both extrinsic and intrinsic motivators. Developmental psychology can account for the complexities behind human motivation. For example, literature has shown that children are far more likely to be extrinsically motivated at young ages, therefore it is fair to assume that incentives are less appealing as intrinsic motivation develops over time. [22] The repercussions of not considering a developmental focus are that the theory of incentivization is reductionist and lacks the ability to be extrapolated to a wide range of age groups, occupational groups and cultural demographics. Certain psychological theories counter incentive motivation, such as Skinner's theory of learning (1969), [23] which argues that an individual's behavior is directly linked to their external environment, making it difficult to invision an incentivized individual within that framework.

See also

Related Research Articles

<span class="mw-page-title-main">Motivation</span> Inner state causing goal-directed behavior

Motivation is an internal state that propels individuals to engage in goal-directed behavior. It is often understood as a force that explains why people or animals initiate, continue, or terminate a certain behavior at a particular time. It is a complex phenomenon and its precise definition is disputed. It contrasts with amotivation, which is a state of apathy or listlessness. Motivation is studied in fields like psychology, motivation science, and philosophy.

<span class="mw-page-title-main">Incentive</span> Something that motivates individuals to perform

In general, incentives are anything that persuade a person to alter their behavior in the desired manner. It is emphasized that incentives matter by the basic law of economists and the laws of behavior, which state that higher incentives amount to greater levels of effort and therefore higher levels of performance.

Content theory is a subset of motivational theories that try to define what motivates people. Content theories of motivation often describe a system of needs that motivate peoples' actions. While process theories of motivation attempt to explain how and why our motivations affect our behaviors, content theories of motivation attempt to define what those motives or needs are. Content theory includes the work of David McClelland, Abraham Maslow and other psychologists.

Motivational salience is a cognitive process and a form of attention that motivates or propels an individual's behavior towards or away from a particular object, perceived event or outcome. Motivational salience regulates the intensity of behaviors that facilitate the attainment of a particular goal, the amount of time and energy that an individual is willing to expend to attain a particular goal, and the amount of risk that an individual is willing to accept while working to attain a particular goal.

The overjustification effect occurs when an expected external incentive such as money or prizes decreases a person's intrinsic motivation to perform a task. Overjustification is an explanation for the phenomenon known as motivational "crowding out". The overall effect of offering a reward for a previously unrewarded activity is a shift to extrinsic motivation and the undermining of pre-existing intrinsic motivation. Once rewards are no longer offered, interest in the activity is lost; prior intrinsic motivation does not return, and extrinsic rewards must be continuously offered as motivation to sustain the activity.

<span class="mw-page-title-main">Somatic marker hypothesis</span> Hypothesis that emotional processes guide or bias decision-making

The somatic marker hypothesis, formulated by Antonio Damasio and associated researchers, proposes that emotional processes guide behavior, particularly decision-making.

Self-determination theory (SDT) is a macro theory of human motivation and personality that concerns people's innate growth tendencies and innate psychological needs. It pertains to the motivation behind people's choices in the absence of external influences and distractions. SDT focuses on the degree to which human behavior is self-motivated and self-determined.

<span class="mw-page-title-main">Orbitofrontal cortex</span> Region of the prefrontal cortex of the brain

The orbitofrontal cortex (OFC) is a prefrontal cortex region in the frontal lobes of the brain which is involved in the cognitive process of decision-making. In non-human primates it consists of the association cortex areas Brodmann area 11, 12 and 13; in humans it consists of Brodmann area 10, 11 and 47.

Motivation crowding theory is the theory from psychology and microeconomics suggesting that providing extrinsic incentives for certain kinds of behavior—such as promising monetary rewards for accomplishing some task—can sometimes undermine intrinsic motivation for performing that behavior. The result of lowered motivation, in contrast with the predictions of neoclassical economics, can be an overall decrease in the total performance.

Frontostriatal circuits are neural pathways that connect frontal lobe regions with the striatum and mediate motor, cognitive, and behavioural functions within the brain. They receive inputs from dopaminergic, serotonergic, noradrenergic, and cholinergic cell groups that modulate information processing. Frontostriatal circuits are part of the executive functions. Executive functions include the following: selection and perception of important information, manipulation of information in working memory, planning and organization, behavioral control, adaptation to changes, and decision making. These circuits are involved in neurodegenerative disorders such as Alzheimer's disease and Parkinson's disease as well as neuropsychiatric disorders including schizophrenia, depression, obsessive compulsive disorder (OCD), and in neurodevelopmental disorder such as attention-deficit hyperactivity disorder (ADHD).

<span class="mw-page-title-main">Reward system</span> Group of neural structures responsible for motivation and desire

The reward system is a group of neural structures responsible for incentive salience, associative learning, and positively-valenced emotions, particularly ones involving pleasure as a core component. Reward is the attractive and motivational property of a stimulus that induces appetitive behavior, also known as approach behavior, and consummatory behavior. A rewarding stimulus has been described as "any stimulus, object, event, activity, or situation that has the potential to make us approach and consume it is by definition a reward". In operant conditioning, rewarding stimuli function as positive reinforcers; however, the converse statement also holds true: positive reinforcers are rewarding.

<span class="mw-page-title-main">Ventromedial prefrontal cortex</span> Body part

The ventromedial prefrontal cortex (vmPFC) is a part of the prefrontal cortex in the mammalian brain. The ventral medial prefrontal is located in the frontal lobe at the bottom of the cerebral hemispheres and is implicated in the processing of risk and fear, as it is critical in the regulation of amygdala activity in humans. It also plays a role in the inhibition of emotional responses, and in the process of decision-making and self-control. It is also involved in the cognitive evaluation of morality.

<span class="mw-page-title-main">Desire</span> Emotion of longing for a person, object or outcome

Desires are states of mind that are expressed by terms like "wanting", "wishing", "longing" or "craving". A great variety of features is commonly associated with desires. They are seen as propositional attitudes towards conceivable states of affairs. They aim to change the world by representing how the world should be, unlike beliefs, which aim to represent how the world actually is. Desires are closely related to agency: they motivate the agent to realize them. For this to be possible, a desire has to be combined with a belief about which action would realize it. Desires present their objects in a favorable light, as something that appears to be good. Their fulfillment is normally experienced as pleasurable in contrast to the negative experience of failing to do so. Conscious desires are usually accompanied by some form of emotional response. While many researchers roughly agree on these general features, there is significant disagreement about how to define desires, i.e. which of these features are essential and which ones are merely accidental. Action-based theories define desires as structures that incline us toward actions. Pleasure-based theories focus on the tendency of desires to cause pleasure when fulfilled. Value-based theories identify desires with attitudes toward values, like judging or having an appearance that something is good.

Consumer neuroscience is the combination of consumer research with modern neuroscience. The goal of the field is to find neural explanations for consumer behaviors in individuals both with or without disease.

Cognitive evaluation theory (CET) is a theory in psychology that is designed to explain the effects of external consequences on internal motivation. Specifically, CET is a sub-theory of self-determination theory that focuses on competence and autonomy while examining how intrinsic motivation is affected by external forces in a process known as motivational "crowding out."

Compensation and benefits (C&B) is a sub-discipline of human resources, focused on employee compensation and benefits policy-making. While compensation and benefits are tangible, there are intangible rewards such as recognition, work-life and development. Combined, these are referred to as total rewards. The term "compensation and benefits" refers to the discipline as well as the rewards themselves.

Warm-glow giving is an economic theory describing the emotional reward of giving to others. According to the original warm-glow model developed by James Andreoni, people experience a sense of joy and satisfaction for "doing their part" to help others. This satisfaction - or "warm glow" - represents the selfish pleasure derived from "doing good", regardless of the actual impact of one's generosity. Within the warm-glow framework, people may be "impurely altruistic", meaning they simultaneously maintain both altruistic and egoistic (selfish) motivations for giving. This may be partially due to the fact that "warm glow" sometimes gives people credit for the contributions they make, such as a plaque with their name or a system where they can make donations publicly so other people know the "good" they are doing for the community.

Employee motivation is an intrinsic and internal drive to put forth the necessary effort and action towards work-related activities. It has been broadly defined as the "psychological forces that determine the direction of a person's behavior in an organisation, a person's level of effort and a person's level of persistence". Also, "Motivation can be thought of as the willingness to expend energy to achieve a goal or a reward. Motivation at work has been defined as 'the sum of the processes that influence the arousal, direction, and maintenance of behaviors relevant to work settings'." Motivated employees are essential to the success of an organization as motivated employees are generally more productive at the work place.

Reward management is concerned with the formulation and implementation of strategies and policies that aim to reward people fairly, equitably and consistently in accordance with their value to the organization.

Intrinsic motivation in the study of artificial intelligence and robotics is a mechanism for enabling artificial agents to exhibit inherently rewarding behaviours such as exploration and curiosity, grouped under the same term in the study of psychology. Psychologists consider intrinsic motivation in humans to be the drive to perform an activity for inherent satisfaction – just for the fun or challenge of it.

References

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