When Do Monetary Incentives Backfire?

In economics "incentives matter," so much so that the bestselling book <em>Freakonomics</em> defines the discipline of economics as the study of incentives. Extrinsic incentives, like cash payments, are familiar forms of incentives and they are often proposed in order to motivate or alter the behavior of individuals. So, should students get financially rewarded for class attendance? Would a smoking cessation program with monetary incentives improve health outcomes? Or, does rewarding good behavior always motivate individuals to behave even more prosocially than without incentives?