Motivation crowding theory

Motivation crowding theory is the theory from psychology and microeconomics suggesting that providing extrinsic incentives for certain kinds of behavior—such as promising monetary rewards for accomplishing some task—can sometimes undermine intrinsic motivation for performing that behavior. The result of lowered motivation, in contrast with the predictions of neoclassical economics, can be an overall decrease in the total performance.

The term "crowding out" was coined by Bruno Frey in 1997, but the idea was first introduced into economics much earlier by Richard Titmuss,^[1][2] who argued in 1970 that offering financial incentives for certain behaviors could counter-intuitively lead to a drop in performance of those behaviors. While the empirical evidence supporting crowding out for blood donation has been mixed,^[3] there has since been a long line of psychological and economic exploration supporting the basic phenomenon of crowding out.

The typical study of crowding out asks subjects to complete some task either for payment or no payment. Researchers then look to self-reported measures of motivation for completing the task, willingness to complete additional rounds of the task for no additional compensation, or both. Removing the payment incentive, compared to those who were never paid at all, typically lowers overall interest in and willingness to complete the task. This process is known as "crowding out" since whatever motivation for the task that previously existed—as estimated by the control condition that was not offered compensation for the task—has been crowded out by motivation merely based on the payment.

A 2020 study which reviewed more than a 100 tests of motivation crowding theory and conducted its own field experiments found that paying individuals for intrinsically enjoyable tasks boosts their performance, but that taking payment away after it is expected may lead individuals to perform worse than if they were not paid at first.^[4]