The Extrinsic Incentive Bias

When individuals are asked about others’ motivations, they often attribute them to outside factors. But when asked about their own motivations, they often cite the more noble motivators that come from within. Regardless of whether we are more right about our own drives versus those of other people, we are likely misjudging others’ motivations in reference to what they think is true.

When people value intrinsic incentives on a personal level but believe others to be motivated by extrinsic factors, a considerable asymmetry emerges. Since “other people” are made up of individual selves, the sum of individual motivations is no different than its parts.

Consider a survey from the mid-’90s administered to roughly 500 aspiring law school students. When asked about their motives for pursuing a legal career, 64% cited the intellectual appeal of law. On the other hand, only 12% believed their peers shared this same motivation, with 62% positing that they’re driven primarily by money.¹

There is no obvious cognitive explanation as to why we exhibit an extrinsic incentive bias. One theory however, is that we express a general inclination to positively inflate our own character relative to others when making causal attributions.2 In regard to assumptions around monetary incentives: explicit money-driven behavior often carries a negative connotation in modern society, with people often opting to distance themselves from the label but are comfortable applying it to other people.

This idea of self-enhancement can help explain a range of other similar attribution biases such as self-serving bias, where we attribute positive events to our own character and negative events to external factor, or the fundamental attribution error, where we attribute behavior to personality-based causes for others, and situational factors for ourselves. The crux of these biases is that they run alongside social comparisons that frame us in a more noble light than our peers. When someone is running late, we attribute their tardiness to irresponsibility, whereas if we’re late, it was because the train was running behind . When we get that promotion, it’s because of our competence, but if we don’t get it, it’s not because we’re incompetent, but because the manager is unfair .

Another explanation for the extrinsic incentive bias, and other attribution biases, is that we tend to gravitate to simple, coherent explanations for events.3 When attributing the motivations of our law school peers, our brains don’t have access to the myriad possible internal drivers each individual may have. A more accessible explanation, however, is the monetary rewards that are well known to come with a career in law. Similarly, in the case of the fundamental attribution error above, it’s much less cognitively demanding to presume someone was late due to their irresponsibility rather than account for the more complex and unknown scenarios that may have made them late.

The extrinsic incentive bias is particularly important in management science and product design, as reward schemes and incentive frameworks are often designed by individuals, for individuals. If we are misinterpreting others’ motivations, however, we may not be maximizing the incentives available.

Imagine you are designing an app with a reward scheme. If you assume that people mostly care about money, you may incorporate some coupon codes to incentivize users. By neglecting the potential intrinsic rewards that may actually resonate more with a user than the extrinsic ones, you are failing to adequately optimize an incentive framework. For an app that relies heavily on its reward scheme in driving user engagement, the extrinsic incentive bias can have great consequences.

Similarly, managers that devise reward schemes for employees are prone to overestimating the value people place on extrinsic rewards while underestimating the value of intrinsic ones. This oversight can leave managers failing to optimize motivation among employees.

When trying to mitigate the extrinsic incentive bias, it helps to put yourself in another person’s shoes. What makes us so special as individuals? Why would we be more motivated by intellectual stimulation while others are only in it for the money? While there is no easy way to really know which preferences and behaviors can be attributed to which incentives (it is likely a mix of both intrinsic and extrinsic rewards in most cases), it can help to acknowledge this ambiguity and empathize with another’s motives.

The extrinsic incentive bias was first introduced by the management scientist, Chip Health, in 1999.⁴ His paper On the Social Psychology of Agency Relationships: Lay Theories of Motivation Overemphasize Extrinsic Incentives, outlined empirical support for the bias as well as its implications for organizations.

Health also sought to broaden the understanding of attribution biases within social psychology by contrasting the extrinsic incentive bias from existing attribution biases, such as the actor-observer bias, which is the logical opposite of the extrinsic incentive bias, stating that we rely on external factors when attributing our own behavior and internal factors when attributing the behavior of others (analogous to the fundamental attribution error).

Health doesn’t present the extrinsic incentive bias as a competing theory in attribution biases, however, but as a complement to a nuanced space where there are no universal effects, but rather a number of biases that are context dependent.

Part of Health’s empirical support for the extrinsic incentive bias came from a study of 25 call center managers from CitiBank. The managers claimed to know the customer representatives well, but when probed on how they perceived the reps thought about incentives, they overestimated the value employees placed on external rewards such as money, and underestimated the value they place on internal rewards.

In a blog post,⁵ the executive coach David Facer mentioned how executives that he has dealt with often express different beliefs about the motivations of their employees versus their own motivations. One executive was noted saying, “I believe it because I know from direct experience. People work for money, not for free. It’s a lot easier to motivate employees when I can promote them and pay them more.” When Facer asks the executives about what motivates them to work 60-hour workweeks, they cite the meaning of their work, how it interests them, and how it offers a challenging sense of stimulation.

What it is

The extrinsic incentive bias is the tendency to overestimate others’ motivations as being attributed to extrinsic incentives while underestimating the value of intrinsic ones.

Why it happens

There is no consensus on the mechanisms involved, but it’s possible that the extrinsic incentive bias is a product of our tendency to enhance our own self-image relative to others. By assuming others are motivated by money, while we’re in it for the personal reward, we in turn view ourselves as more noble.

Additionally, attributing behavior to extrinsic rewards is sometimes a more coherent explanation. As sense-making creatures, we are drawn to the conclusions that are simple and explanatory rather than complex and riddled with uncertainty.

Example 1 - CitiBank managers

CitiBank managers were asked about what they thought their employees valued. The managers disproportionately believed they valued extrinsic rewards such as money, while underplaying the value of intrinsic rewards that the employees themselves expressed they valued.

Example 2 - Executives think they’re different

Anecdotal evidence from the executive coach David Facer points out the distinction between executive’s beliefs about the primary incentives of their employees versus their own primary incentives. While their employees are thought to be driven by salary and bonuses, the executives see themselves as driven by intrinsic rewards such as solving challenges.

How to avoid it

It is important to empathize with others’ motivations and to realize that we may not be as unique as we often think we are. If we’re driven by intrinsic incentives such as intellectual stimulation, it’s likely the case that many of our like-minded peers are as well. Conversely, if we believe our peers are motivated by money, we shouldn’t be so quick to discredit the same motive applying to our own behavior.

The Science of Reward

This article addresses the nuance of incentivizing individuals. The traditional economic narrative of paying more to get more does not stack up with recent scientific research which shows that people are driven by more than just money.

The Majority of Americans Are Checked Out At Work: How Behavioral Science Can Help Create Better Managers

This article highlights the lack of engagement among employees in America. It suggests that the key to creating an engaged workplace goes beyond extrinsic incentives such as salary and job flexibility, and involves leveraging intrinsic rewards such as pride and a sense of creativity.