Few things can ruin your daily commute faster than a chance encounter with a venomous cobra. And if you lived in New Delhi during the early 1900s, this might happen to you regularly. The streets were rife with cobras during colonial rule, posing a major public safety threat to New Delhians.

The situation became so untenable that the colonial government sprang into action with what they thought was the perfect solution: Instead of the government going in and trying to regulate these pesky serpents, let's make it a team effort by offering cash rewards to anyone who captures and kills the snakes themselves.

This was a well-intentioned reward system, but it backfired spectacularly. And it wasn't merely because ordinary citizens were terrible at catching snakes, often harming themselves. Instead, it was the incentives themselves: Clever New Delhians quickly realized that the more snakes there were, the more money there was to gain. People began breeding cobras in order to turn them in and collect their reward.

What started as a system for eliminating the cobra population actually increased it.

This story has now become immortalized in the psychology of incentives and gave rise to what's known as the cobra effect. This now describes instances when an incentive system backfires and has the opposite effect on the intended behavior. It provides a cautionary tale to anyone looking to apply incentives and rewards to solve a problem.

The cobra effect also provides lessons for marketers. Understanding the psychology of motivation is crucial for driving consumer behavior. And as the British colonialists quickly learned, harnessing the power of incentives is not as straightforward as it always seems.

We'll return to this issue of motivational backfire soon. But first, when and how do incentives work well?

At a basic level, incentives drive behavior through positive reinforcement. If you give your dog a treat when it sits on command,........

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