Incentive theory is a subset of research on “human motivation” or as I like to call how “How to dangle the carrot and wave the stick around“. For instance, if you’re running a sales office, and you need more sales, what is more effective? Bonuses or threats of people being fired? It comes from a field of psychology made famous and pioneered by B.F. Skinner who did a lot of work on operant conditioning. Those of you who read my post on expectancy theory and equity theory are already partially familiar with this concept and some of its effects.
Sometimes such incentives can have positive effects, such as when you offer a major bonus to the best salesperson. Sometimes they can have very unfortunate effects when the encourage hiring patterns that focus highly on “social fit” and less on ability, education or experience. Sometimes it can have positive effects, such as seeing a quarterback getting laid like a rockstar and that encouraging young boys to try to be good at football. Other times it can have negative effects, such as when a “nice guy” notices that all the guys he knows with girlfriends like to tool them up once in a while and decides that in order to get a girlfriend he has to become the type of guy who tools up women.
A core principle of incentive theory is that people do what you are encouraging them to do in order to reach their goals. If a man wants to get laid like a rockstar, he will adopt the behaviors that make that happen. The 2008 financial crisis is interesting in this respect, in that the system encouraged the very behavior and recruited personalities prone to such behavior, that almost lead to a systemic collapse.