What are incentive structures?

Incentive structures are rules that help people decide what to do by giving them rewards or taking away punishments based on their choices.

Imagine you're playing a game with your friend, and every time you pick the red ball instead of the blue one, you get a sticker. That’s like an incentive structure, it encourages you to choose the red ball because it gives you something good.

• If you want more stickers, you’ll probably keep picking the red ball.
• But if picking the blue ball makes your friend laugh at you, that's a punishment, and you might avoid it next time.

In real life, incentive structures are everywhere, like when you get extra candy for cleaning up your room or lose screen time for not doing homework. These rules help guide what people do, just like your stickers and laughs guide your choices in the game.