Proposed by Chip Heath in the late 1990s, the extrinsic incentive bias describes our incorrect belief that others are working for extrinsic gain, most often money, rather than intrinsic reasons, like building skills or enjoying the task. This bias is most often applied in organizational settings, relating to employee motivations. It is notable for being a deviation from the fundamental attribution error, which states that people tend to assume that the behavior of others is motivated by disposition, while believing that their own behavior is situationally motivated. The extrinsic incentive bias assumes the opposite, which is that people are motivated by rewards (a situational characteristic). This bias is important to understand when hiring, as the offers one makes should consider intrinsic as well as extrinsic factors.
MBA students were asked to rank a number of possible job motivations for Citibank employees. These included extrinsic factors, such as pay and job security, and intrinsic factors, such as praise and skill development. Students ranked the extrinsic factors much higher than the intrinsic factors. When the Citibank employees ranked the factors for themselves, they ranked the intrinsic factors higher than the extrinsic factors.