A simple coupon changes how people shop. Stores offer buy-one-get-one-free deals to move extra inventory. Employers pay bonuses to keep good workers. Through these everyday examples, shoppers reveal the engine behind all human behavior. Welcome to the world of economic incentives. The following guide explains how these invisible forces control your money. You will learn how to spot hidden nudges and use them to build better financial habits.

Economists study how people make choices. An incentive simply represents a reward or punishment that motivates a person to take a specific action. Charlie Munger famously warned investors to understand the power of rewards. Think of incentives as the carrots and sticks of the financial world.