Before Pepsodent, almost no Americans brushed their teeth. 

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One day in the early 1900s, a prominent American businessman named Claude C. Hopkins was approached by an old friend with a new business idea: a minty, frothy toothpaste he called “Pepsodent”.

Hopkins was one of the nation’s most famous advertising executives with a track record of successful marketing campaigns. But his greatest contribution would be helping to create a national tooth brushing habit. 

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A decade after Hopkins’ advertising campaigns, toothbrushing had become a daily ritual for more than half the population. 

How did Hopkins’ do it? He applied the psychology of habit formation. 

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First, he paired the routine (brushing teeth) with  a simple and obvious cue (the feeling of a tooth film - when you run your tongue across your teeth). And secondly, he introduce immediate rewards (having a fresh-smelling breath and a beautiful smile). 

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Humans crave immediate rewards. And good dental hygiene is a long-term benefit, with no immediate apparent rewards. 

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In fact, other times, we fail to achieve our goals because competing (and oftentimes less desirable) behaviours are more enjoyable or immediately rewarding (like eating that tasty cookie rather than sticking to the diet).

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The incentive theory that emerged during the 1940s and 1950s suggested that people are pulled toward behaviours that lead to external rewards and reinforcement, and pushed away from actions that might lead to negative consequences. The so-called carrot and stick.

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Whether we are trying to encourage users to build habits or do other types of actions, the easiest way to think about rewards is as something positive that is added or something negative that is removed in order to incentivise a certain behaviour. Incentives can be monetary (e.g., cash bonuses, prizes) or non-monetary (e.g., free items, discounts, gift cards etc.). Tangible Incentives and rewards have become the foundation of workplace incentives systems, loyalty programs, and policies targeting citizens and organisations. 

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Unfortunately, this approach to motivating people may backfire. Research has shown that tangible rewards can reduce (or “crowd out”) intrinsic motivation (which occurs when people perform an activity due to the satisfaction derived from something inherent in the activity itself). 

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Given these findings, should initiatives to encourage positive behaviour avoid monetary incentives altogether? 

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Definitely not. 

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Researchers are still debating the role of intrinsic and extrinsic incentives in different contexts. Recent research, for example, suggests that extrinsic rewards may have a detrimental impact on intrinsic motivation only in the short term.

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Looking at incentives from a behavioural perspective, one of the problems with using extrinsic incentives to encourage behaviour is not necessarily about effectiveness but about cost. Paying someone $1,000 per day to walk for a mile should work well in both the short run and the long run, but it's not feasible from a financial perspective. 

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So the question is, how can we foster behaviour change with extrinsic incentives on relatively small budgets?

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Take exercise to lose weight. As discussed above it can take weeks or even months before one notices some weight loss and receives the natural feedback of feeling and looking better. Frequency and consistency are key. 

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Will paying people work?

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A recent megastudy—a massive field experiment— conducted by Katherine Milkman and colleagues have demonstrated the effectiveness of behaviour change interventions. Targeting more than 60,000 members of an American fitness chain for a four-week period, the set of interventions boosted gym visits by 9–27%. What is interesting is that the top-performing intervention offered small cash rewards (a nine cent bonus) for returning to the gym after a missed workout.  

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Similarly, another study co-authored by Professor Gary Charness suggests that incentives can have no effect or indeed backfire when people who are already regularly attending the gym receive extrinsic incentives to exercise. For previously non regular gym-goers in the study, however, incentives had a lasting positive effect on behaviour.

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Virtual Currency

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When it comes to design of products monetary rewards come in the form of virtual currencies to facilitate micro-transactions (in-game purchases) or incentivising specific activities. For example e-commerce apps incentivise daily usage or other actions (e.g., refer friends) with virtual currency that can be used for future purchases.

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They are also increasingly used to promote health behaviours. Through virtual currencies we continuously incentivise people to perform positive behaviours. 

Typically, virtual currency can only be used within the system by enabling users to spend the points/coins accrued with tangible rewards outside of the system (discounts on products or lower insurance premium).  

A good example is SweatCoin app, which allows users to continuously be incentivised to be physically active through generation of virtual currency from steps. Through analysis of a sample of Sweatcoin users, a study found a sustained increase in physical activity (measured by daily step count) over a 6-month period. Users identified as overweight and less active were most likely to show the highest increases in activity after registering with the app.

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Another approach looks beyond the use of monetary rewards.

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The examples above illustrate that designing effective reward and incentive systems is both a science and art. 

Monetary incentives can encourage positive behaviours, but can also be ineffective, or even backfire. In addition to learning how to use monetary incentives effectively (small budget and at the right time), a behavioural science and gamification design approach requires to consider two important aspects. 

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Redesign incentive systems as more intrinsic by leveraging other behavioural strategies.

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Monetary incentives (as in the case of SweatCoins and similar apps) are generally predictable. Users know what needs to be done (the requirements to earn it) and know the amount that will be earned.  

But what if the incentive/reward is made more intriguing and/or unexpected? Introducing an element of randomness and unpredictability has become particularly important in the context of software and game design, and it all began in the 1950s with psychologist B.F. Skinner’s work on operant conditioning.

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Skinner set up an experiment by giving lab rats two different levers that, when pressed, would give them pellets of food (the reward). The first lever yielded the same amount of food each time, while the second lever would sometimes yield a small pellet, sometimes a large pellet, and sometimes no pellet at all.

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Skinner observed that those with the variable lever were engaging more often and longer than those with the more predictable one. It turns out that more dopamine is released in anticipation of the reward rather than in the receipt of the reward itself. And the same phenomenon is observed in human behaviour too.

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The science behind these observations comes down to something called Variable Rewards. Variable rewards can both create harmful addicting experiences (e.g slot machines) as well as support positive behaviour changes by eliciting positive emotions such as curiosity and surprise. Variable rewards are also essential to create habit-forming products. 

Design balanced experiences to recognise the importance of both extrinsic and intrinsic motivation.

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Each kind of motivation plays an important role.

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Extrinsic rewards can trigger interest and participation in an activity an individual was not initially interested in (and eventually people will become more intrinsically motivated to pursue an activity).

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However, designing engaging products that change behaviours in the long run requires making the activity intrinsically motivating by leveraging emotional and intangible rewards that increase our sense of autonomy,social connection, and competence.