2. Motivation and incentives

Incentives are the fundamental driver in economic analysis. Money is often the main incentive, but a complex range of other socio-economic and psychological factors also drive our decision-making. ‘Motivation and incentives’ outlines two groups of incentives and motivations: intrinsic and extrinsic. Extrinsic motivations can crowd out our intrinsic motivations when our intrinsic motivations are dampened by external rewards.

Pro-social choices and image motivation are key drivers too, especially for charitable donations. Efficiency wage theory is another example of how economic and socio-psychological influences motivate effort at work. Insights from behavioural economics help us to develop a richer understanding of the complex motivations driving our choices and efforts, and their consequences.