How Behavioral Economics Can Create Better Incentive Programs
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How Behavioral Economics Can Create Better Incentive Programs

BY Lucy Fang
Dec 09, 2022
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Behavioral economics is a powerful tool that can help businesses design more effective incentive programs. By understanding how people make decisions and respond to incentives, businesses can tailor their programs to achieve their desired goals. In this blog post, we’ll explore how behavioral economics can be used to create better incentive programs.

Understanding the Basics of Behavioral Economics

Behavioral economics is a branch of economics that examines how psychological, social, and emotional factors can influence decision-making. It is based on the idea that people do not always act in their own best interests or in line with traditional economic assumptions about human behavior.

Incentive programs can be designed to take advantage of the principles of behavioral economics to encourage people to engage in certain behaviors. For example, an incentive program might use loss aversion, a concept from behavioral economics, to motivate people to take action. Loss aversion refers to the idea that people are more motivated by the prospect of avoiding a loss than they are by the prospect of gaining something.

One way to use loss aversion in an incentive program is to offer a reward for achieving a certain goal but also to impose a penalty for failing to meet that goal. This creates a sense of urgency and can motivate people to take action in order to avoid the penalty.

Another way to use behavioral economics in incentive programs is to make the rewards more tangible and immediate. People are more likely to be motivated by rewards that they can see and experience right away rather than by abstract or distant rewards.

Behavioral Economic Principles & Incentive Programs

There are several behavioral economic principles that are relevant to incentive programs. Some of these principles include:

Loss aversion: This principle states that people are more motivated to avoid losses than to achieve gains. In the context of incentive programs, this means that people may be more motivated to take an action if they believe that not taking the action will result in a loss (e.g., a financial penalty or loss of social status) rather than if they believe that taking the action will result in a gain (e.g., a financial reward or recognition).


Anchoring: This principle states that people’s decisions and judgments are influenced by the initial information they receive. In the context of incentive programs, this means that the initial offer or incentive provided can influence people’s behavior. For example, if the initial offer is relatively low, people may be less motivated to take the desired action, even if a higher offer is subsequently made.


Social comparison: This principle states that people often compare their own actions and outcomes to those of others. In the context of incentive programs, this means that people may be more motivated to take the desired action if they believe that others are also taking the action, or if they believe that taking the action will help them achieve a desirable social status.


Salience: This principle states that people are more likely to be influenced by information that is more prominent or noticeable. In the context of incentive programs, this means that the way in which the incentive is presented (e.g., the size, color, or placement of the offer) can influence people’s behavior. For example, if the offer is presented in a way that makes it more noticeable or salient, people may be more motivated to take the desired action.

Overall, these principles can be useful for designing incentive programs that are more likely to be effective at motivating people to take the desired action.

How to Implement These Principles

If you are interested in incorporating the principles of behavioral economics into your incentive programs, then you will need a technology platform that is designed to support these types of initiatives. Our incentive technology platform is specifically designed to help you create and manage incentive programs that are based on the latest insights from behavioral economics. With our platform, you can easily track and monitor progress towards goals, make rewards more visible and accessible to participants, and handle all aspects of program management and vendor integrations. Our platform is customizable, so you can tailor it to your specific business objectives and needs. If you would like to learn more about how All Digital Rewards can help you incorporate principles of behavioral economics into your incentive program, call us today at 866-415-7703, or click on the button on the right to schedule a demo.