Extrinsic incentives bias

An exception to the fundamental attribution error, when people view others as having (situational) extrinsic motivations and (dispositional) intrinsic motivations for oneself.

The extrinsic incentives bias is an attributional bias according to which people attribute relatively more to "extrinsic incentives" (such as monetary reward) than to "intrinsic incentives" (such as learning a new skill) when weighing the motives of others rather than themselves.

It is a counter-example to the fundamental attribution error as according to the extrinsic bias others are presumed to have situational motivations while oneself is seen as having dispositional motivations. This is the opposite of what the fundamental attribution error would predict. It also might help to explain some of the backfiring effects that can occur when extrinsic incentives are attached to activities that people are intrinsically motivated to do. The term was first proposed by Chip Heath, citing earlier research by others in management science.

What is Extrinsic Incentive Bias?

Extrinsic incentive bias refers to the propensity to credit other people's incentives to extrinsic incentives, such as job stability or high income, rather than intrinsic rewards, such as learning new things or developing new skills.

Definition

An extrinsic incentive is described as a monetary incentive that motivates someone to do something. It's a practical use of operant conditioning. Operant conditioning is a type of behavior modification in which incentives or penalties are used to enhance or reduce the chance of certain actions recurring. Extrinsic incentives use rewards or incentives for particular actions, such as praise, fame, or money. This form of incentive is driven by external stimuli rather than an internal incentive. When someone is paid to accomplish a task, this is known as an extrinsic incentive. You may prefer to spend your day doing something other than work, but you need a salary to pay your bills, so you're driven to go to work. You're extrinsically driven, in this case, by your capacity to meet your daily costs. To be compensated, you must work a set number of hours each week in exchange. Monetary incentives rarely accompany the extrinsic incentive. It may also be done with intangible benefits such as acclaim and renown. On the other hand, the intrinsic incentive is fueled by internal causes such as personal growth or a desire to achieve. For activities that need long-term execution, the intrinsic incentive is often considered as a more potent incentive.

Where it occurs ?

People are capable of becoming cynical. We often make assumptions about other people's intentions that aren't always correct. We think that everyone on Wall Street is motivated by profit, that all politicians seek power, and that everyone on social media is looking for likes. People's responses to questions about their motives, on the other hand, do not match the extrinsic incentives that many have assumed to be the key reason. Markets attract bankers, politicians want to feel good about making a difference, and consumers prefer to share images on Facebook to connect with others socially.

Individual effects

When people are questioned about the motives of others, they frequently ascribe them to external forces. When questioned about their reasons, though, they frequently claim the nobler internal motivators. Regardless of whether we are more correct about our motives than others, we are most certainly misjudging others' incentives regarding what they believe to be true.

Systemic effects

A significant disparity occurs when people prioritize intrinsic incentives personally but believe extrinsic causes drive others. Because "other people" are made up of distinct selves, the total of their motives is equal to the sum of their components. Consider a poll conducted in the mid-1990s among 500 potential law school students. When asked why they wanted to be a lawyer, 64% said it was because of the intellectual appeal. Only 12% of respondents thought their friends had the same motive, with 62% believing they were motivated primarily by money.

Why it happens ?

Why is there an extrinsic incentive bias in humans? There isn't a logical reason for this. However, one theory proposes that when making causal attributions, we have a general tendency to exaggerate our character in comparison to others. In terms of monetary incentives, openly money-motivated behavior has a negative connotation in modern culture, with most people preferring to avoid the label yet comfortable assigning it to others. This concept of self-enhancement can help explain a variety of other attribution biases, such as the self-serving bias, in which we attribute positive events to our character while attributing negative events to external factors, or the fundamental attribution error, in which we attribute behavior to personality-based causes for others and situational factors for ourselves. The essence of these prejudices is that they coexist with social comparisons that portray us as nobler than our peers. When someone is late, we blame their tardiness on carelessness, yet when we're late, it's because the train was late. If we receive that promotion, it's because of our ability; if we don't, it's because the manager is unjust, not because we're inept. Another factor contributing to the extrinsic incentive bias and other attribution biases is that humans prefer simple, logical explanations for events. Our brains don't have access to the various internal drivers that each individual may have when assigning the incentives of our law school friends. A more accessible answer, on the other hand, is the well-known monetary benefits of a legal career. Similarly, in the example of the basic attribution mistake mentioned earlier, it's far easier to assume someone was late because of their irresponsibility rather than account for the more complicated and unknown events that may have caused them to be late.

Why it is important ?

Because compensation schemes and incentive frameworks are frequently built by humans, for individuals, the extrinsic incentive bias is particularly significant in management science and product design. However, if we misjudge others' objectives, we may not use all of the available incentives. Assume you're creating an app with a rewards system. If you presume that consumers are primarily concerned with money, you may provide promo codes to entice users. You fail to properly optimize an incentive framework if you ignore the potential intrinsic incentives that may resonate more with a user than the irrelevant ones. Extrinsic incentive bias can have serious ramifications for an app that significantly depends on its reward scheme to drive user engagement. Managers who develop employee compensation plans are also prone to overestimating the value individuals place on extrinsic rewards while underestimating the significance of intrinsic rewards. This mistake may result in managers failing to maximize staff incentives.

How to avoid it ?

Putting yourself in another person's shoes can assist you in overcoming extrinsic incentive bias. What distinguishes us as individuals? Why does intellectual stimulation drive us more than those who are solely interested in making money? While there is no clear way to identify which preferences and actions can be linked to which incentives (most preferences and behaviors are likely a combination of both intrinsic and extrinsic rewards), acknowledging this ambiguity and empathizing with another's incentives might assist.

How it all started ?

Chip Heath, a management scientist, initially proposed the extrinsic incentive bias in 1999. Health also aimed to broaden social psychology's understanding of attribution biases by contrasting the extrinsic incentive bias with other attribution biases, such as the actor-observer bias, which states that we rely on external factors when attributing our behavior and internal factors the behavior of others. However, the extrinsic incentive bias is presented in Health not as a rival theory in attribution biases but as a supplement to a nuanced universe where there are no universal effects but rather a multitude of context-dependent biases.

Is it effective?

For certain people, the extrinsic incentive may be more successful than an intrinsic incentive. This type of incentive may also be more suited to certain situations. For some people, the advantages of external incentives are sufficient to inspire them to continue doing high-quality work. Others are more motivated by value-based rewards. The extrinsic incentive is most effective when the reward is applied sparingly enough to maintain its effectiveness. If the reward is given in excess, the value of the gift may be reduced. The overjustification effect is a term used to describe this phenomenon. When an activity you already appreciate is rewarded so frequently that you lose interest, this is known as the overjustification effect. Researchers in one study compared how 20-month-olds responded to financial prizes to how they responded to social praise or no reward. The group that got material rewards were shown to be less likely to repeat the same beneficial acts in the future. This implies that the overjustification effect might begin as early as childhood. Excessive extrinsic incentives may lead to a decline in intrinsic drive, according to some research. However, not all researchers agree. The concept was initially investigated in a 1973 research. Some youngsters were rewarded for playing with felt-tip pens during the research. This was something they were already interested in. Other youngsters were not rewarded for their participation in this exercise. The reward group no longer desired to play with the pens after being rewarded repeatedly. Those who were not compensated in the research continued to love playing with the pens. A meta-analysis from 1994 revealed little evidence to back up the 1973 study's results. On the other hand, the extrinsic incentive was shown not to affect the long-term pleasure of activities. A follow-up meta-analysis published in 2001, however, revealed evidence to support the 1973 idea. Finally, a 2014 meta-analysis found that extrinsic drive had negative consequences only in extremely narrow contexts. However, for the most part, it may be a powerful motivator. Extrinsic incentive may have detrimental long-term consequences depending on how it is applied. When utilized in conjunction with other sources of incentive, it's likely to be successful.

Conclusion:

The purpose of this study is to see if performance-dependent, extrinsic factors have a favorable impact on the quality of frequency evaluations. Fifty-one graduate business school subjects completed frequency distribution evaluations for three variables they were familiar with under equal payment and equal payment + performance-contingent incentives situations. Extrinsic incentives based on performance regularly resulted in more accurate frequency evaluations. There were no significant anchoring effects seen.

How can this help improving your website ?

This can help you to challenge your value proposition. We realized that naturally, we tend to misunderstand others motives. Have you really put yourself in your user's shoes, when you wrote your website copy. Are you sure that the motivations your assumed your users to have are the right ones ? Ask yourself those questions, and even better, ask your users those questions to improve your copy-writing.

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Example of hypothesis applied

If I rewrite my value proposition to reflect better my users incentive according to "Extrinsic incentives bias" I will improve engagement on my website.

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