Step 1: Idea: use the key phrase observing others
Only some options involve watching other people. Find them first.
Step 2: Test option (1)
Vicarious learning is learning from watching others. It is the only option about watching.
Step 3: Test option (2)
Token economy rewards actions with tokens and does not need a model. Out.
Step 4: Test option (3)
Differential learning is not a recognised technique. Out.
Step 5: Test option (4)
Flooding is exposure to a fear and has no model. Out.
Step 6: Conclusion
The learner watches a model and small gains are rewarded. This is learning through another person, which is vicarious learning.
Final Answer:
Option (1), vicarious learning, is correct.
\[ \boxed{\text{Option (1)}} \]