Theories of Incentives

Theories of incentives explore how rewards and penalties influence people's behavior and motivation. They suggest that individuals are driven to act in certain ways based on benefits they can gain or losses they want to avoid. For example, financial bonuses can encourage employees to work harder, while penalties can discourage undesirable actions. These theories help organizations design systems and policies that align individual motivations with desired outcomes, fostering efficiency and productivity. Ultimately, incentives shape decisions by making certain behaviors more attractive or undesirable, guiding individuals toward specific goals through the promise of rewards or the threat of punishment.