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Incentive

in-SEN-tiv /ɪnˈsɛntɪv/

nounB2GRESATUPSC

FormalGeneral

A thing that motivates or encourages one to do something.

In economics, incentives are crucial for understanding behavior. They can be positive (rewards) or negative (penalties) and influence decisions by changing the costs and benefits of actions.

The story behind the word. The word 'incentive' comes from the Late Latin incentivus, meaning 'setting the tune' or 'inciting.' It originally referred to a 'provocative' or 'stimulating' sound, like a song that stirs one to action. Over time, it evolved to mean anything that encourages or motivates action, especially in economic contexts where rewards or penalties drive decision-making.

Word relationships

motivation: 'Motivation' is the internal drive, while 'incentive' is the external factor that creates or influences that motivation.
stimulus: 'Stimulus' is something that causes a reaction, often more immediate or physiological, while 'incentive' is a calculated factor to encourage a specific behavior.

disincentive: A factor that discourages a particular action or behavior.
deterrent: Something that discourages or prevents an action through fear or doubt.

Commonly confused with

reward: A 'reward' is a specific positive outcome for an action, while an 'incentive' is a broader factor (which could be a reward) that influences a decision before the action.

Word family

incentivize (verb): To provide an incentive to someone.

Collocations

financial incentive
economic incentive
strong incentive
create an incentive
provide an incentive

Example sentences

"The company offered a bonus as an incentive for employees to exceed their sales targets." Discussing employee motivation.
"Tax breaks provide an incentive for businesses to invest in renewable energy technologies." Analyzing public policy.

Memory hook

An IN-CENT-ive is like a 'cent' (money) that gives you a reason to do something, providing a 'cent' to move you forward. INCENTIVE = Reason to Act

When not to use

While 'incentive' can be used broadly for any motivator, in economic discussions, it specifically refers to factors that alter the perceived costs or benefits of a choice, driving rational behavior.

Fun facts

Behavioral economics studies how psychological factors, beyond purely rational incentives, influence decision-making.