Explanation:

An incentive is something that motivates or drives one to do something or behave in a certain way. There are two types of incentives that affect human decision making. These are: intrinsic and extrinsic incentives. Intrinsic incentives are those that motivate a person to do something out of their own self interest or desires, without any outside pressure or promised reward.  However, extrinsic incentives are motivated by rewards such as an increase in pay for achieving a certain result; or avoiding punishments such as disciplinary action or criticism as a result of not doing something. 

Some examples of extrinsic incentives are letter grades in the formal school system, monetary bonuses for increased productivity or withholding of pay for underperforming in the workplace.  Examples of intrinsic incentives include wanting to learn a new language to be able to speak to locals in a foreign country or learning how to paint for self enjoyment.

In the context of economics, incentives are most studied in the area of personnel economics where human resources management practices focus on how firms manage employee incentives such as pay and career concerns, compensation and performance evaluation.