Organisational Behaviuor

Organizational Behavior and Human Decision Processes
Vol. 78, No. 1, April, pp. 25–62, 1999
Article ID obhd.1999.2826, available online at on

On the Social Psychology of Agency
Relationships: Lay Theories of Motivation
Overemphasize Extrinsic Incentives
Chip Heath
Duke University

Three laboratory studies and one field study show that people
generally hold lay theories which contain an extrinsic incentives
bias—people predict that others are more motivated than themselves by extrinsic incentives (job security, pay) and less motivated by intrinsic incentives (learning new things). The extrinsic
incentives bias can be separated from a self-serving bias and it
provides an empirical counterexample to the traditional actor–
observer effect in social psychology (although its theoretical explanation is similar). This kind of bias may hinder organizations
from organizing because people who act as principals may use
improper lay theories to offer inappropriate deals to agents.
᭧ 1999 Academic Press

Organizations must convince their members to adopt the goals of the organization. If they do, they will meet the fundamental challenge of organizing. This
fundamental challenge has attracted attention from theorists of organizations
and theorists of individual motivation. Organizational theorists have described
the challenge and outlined its solution—organizations offer their members a
deal: inducements in exchange for contributions (Barnard, 1938; March &
Simon, 1958). Theorists of individual motivation have examined the potential
content of this deal—organizations must address their members’ various needs
For comments on earlier drafts, the author thanks Linda Babcock, Steve Cole, Craig Fox, Tom
Gilovich, Dan Heath, Jill Kern, Josh Klayman, Rod Kramer, Sonja Lyubomirsky, Jim March,
Michael Morris, Lee Ross, Batia Wiesenfeld, John Wright, and participants in workshops at Carnegie–Mellon, Chicago, Duke, Illinois,...