UX in the wild vs UX observed

Recently I was lucky enough to sit right next to a user on the train who happened to be using one of the apps that I designed. Without disclosing this to them, I managed to observe how they use the app. Even though they weren't thinking out loud as in a user testing sessions it was very insightful to see how they use it.

Which comes to the question, compared to bringing in users for a 'user testing' sessions, would their behavior be different when users know they are being observed? Or even worse, when an incentive is given. If so would that make the research flawed?