It is generally believed that referral reward programs (RRPs) work because recommendations from friends or relatives are perceived as impartial and trustworthy in analogy to what happens with word-of-mouth recommendations. To understand how an incentivized recommendation affects recommendation behavior, we conducted qualitative interviews and two experiments. We show that recommendation behavior is driven by the givers perception (i.e., their metaperception) of how they will be viewed by the receivers. Metaperception, in turn, is affected negatively by the presence of an incentive, and positively affected by the tie strength between the giver and the receiver. Our findings show that RRPs can have a positive, neutral, and negative effect on recommendation behavior depending on the relative strengths of the negative indirect effect of incentive on recommendation behavior via metaperception, and the positive effect of the perceived attractiveness of the incentive on recommendation behavior.
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