“A unique characteristic of superior managers is the ability to create high performance expectations that subordinates fulfil ... Subordinates, more often than not, appear to do what they believe they are expected to do.”
One of the most powerful – and frightening – research programs in social psychology was that conducted by Robert Rosenthal into the Pygmalion effect. Named after an ancient Greek who fell in love with a statue he'd carved, it found that a student’s success is directly related to a teacher’s belief in their ability.
This is not simply a finding about children in the classroom, it seems to be a general truism. Good managers get more out of their people by believing in them, and letting them know it. Bad ones create bad vibes and bad results: a CEO that only bullies and never encourages will run a bad company, or at least a less good one than it could be.
As we saw with both the Clever Hans Effect and the Titanic Effect there is a class of behavioural biases which are self-fulfilling: they appear to come true because people believe in them. It’s clear that there’s something quite profound going on with these behaviours, somehow information is leaking between participants even though there are no overt channels.
In the classroom it’s not hard to imagine more direct communication paths but what Rosenthal and his colleagues found was genuinely frightening. They took a bunch of schoolchildren, randomly assigned them different intellectual abilities and then let their teachers see these entirely made-up “results”. When they then analysed the children’s performance, independently of their teachers’ assessments, they found that it correlated with the entirely random and fake original test results. The difference was startling. As James Rheim summarises, the results of the Oak School experiment showed:
“First graders in the control group showed a gain of twelve IQ points; students in the experimental group showed a gain of 27.4 IQ points.”
Stupid by Design
Creating an expectation in the teachers that the “clever” children would perform better led to better performance. It also raises – again – the question of what IQ is actually measuring; but if it’s innate intelligence then it’s readily apparent that a child’s environment is massively significant to its development, even when that’s simply limited to the classroom.
Of course, the greatest concern is about what happened to the students who were randomly assigned to the less smart group. Some of these, presumably, were as smart as, if not smarter, than the supposedly intelligent kids: remember that the “lower track” students here were no such thing, having been randomly assigned to their groups:
“When so-called “lower track” students in the control group at Oak School (students who were not expected to shine) began to show marked improvement and growth, their teacher evaluations on such things as “personal adjustment”, “happiness”, “affectionate” declined. Says Rosenthal: “If the world thinks little of you, it’s going to punish you if you begin to succeed””.
What works, or doesn’t, in the classroom applies equally well, or badly, in the workplace. Workers’ expectations of their own abilities and potential is mediated by that of the people they work for. The less supervisors expect of their charges the less they achieve. Daido and Itoh summarise the research on Pygmalion in the workplace:
“1. A manager’s high expectations influences her attitude towards subordinates.2. Such attitude has positive effects on subordinates’ self expectancy.3. The subordinates’ enhanced self expectancy then improves their performance.”
If you have known low expectations of your employees they’ll behave poorly, if you have high ones they’ll do well. Even worse, if somehow people perform better than expected their contributions will somehow be denigrated in other ways. And if you think this doesn’t matter to investment returns, think again.
The problem is about more than simply training managers to behave positively towards all of their staff, regardless of how highly or lowly they rate them. Like the Clever Hans Effect, the transmission paths of information are often impossible to discern and equally impossible to prevent:
“If managers believe subordinates will perform poorly, it is virtually impossible for them to mask their expectations because the message usually is communicated unintentionally, without conscious action on their part … What seems to be critical in the communication of expectations is not what the boss says so much as the way he or she behaves. Indifferent and noncommittal treatment, more often than not, is the kind of treatment that communicates low expectations and leads to low performance”.
(J Sterling Livingston, Pygmalion in Management)
The Oberlander study from 1961, showed the effect of assigning insurance agents to different groups dependent on their perceived abilities. The top, “super” group, produced outstanding results. The bottom group, meanwhile, had markedly worse results than before, with a significant increase in staff losses. As Pygmalion would predict, the performance of the top and bottom groups moved to meet the expectations of their management.
The Galatea Effect
However, the middle “average” group failed to conform to the expectations, because they were spurred on by a manager who simply refused to believe that her team were any less good. As she showed it is possible to overcome the negative aspects of the Pygmalion effect if you have enough self-belief. The fact is that some people succeed because they think they should – the Galatea effect (the name Pygmalion gave to his statue after the gods brought it to life) – regardless of what others think of them. The people that change the world are usually taken from this small group of self-regarding people.
It’s a sad fact that most of us who’ve worked in industry will have little difficulty in identifying managers who personify everything the Pygmalion effects says they shouldn’t: negative, dismissive and rarely encouraging. Even decent managers find it hard to avoid covertly letting their staff know what they think of them. Finding those who regard encouragement as the first resort, rather than criticism, is far harder. As individuals, though, the Galatea effect tells us that we need to be the arbiters of our own self-worth, to make sure that we get away from managers who seek to undermine this at the earliest opportunity and to try and take a more positive attitude to our underlings, remembering that just acting encouraging isn't going to be enough, we need to believe what we preach. Tricky stuff, this.
Leadership in Action
As for investment, analysing the leadership qualities of firms is a challenging task at the best of times, but looking for leaders who praise their subordinates at every opportunity and refuse to blame individuals publically when things go wrong should be the very least that we filter for. If, as the research suggests, we can get much more out of people simply by making it clear we believe in them and by being supportive then it’s plainly nuts to do the opposite.
Perhaps it’s the vicious nature of modern day, profit maximising corporations, but the self-destructive behaviour with regards to the management of their staff that many firms engage in makes very little sense. The evidence is plain: if you start encouraging people you’ll be more successful than through simply beating them with a stick or even spending lots of money on incentivisation consultants.
- Market Confidence, Tricks and Placebos
- Trading on the Titanic Effect
- Is Self-Interest Self-Fulfilling?
- What's Your Financial IQ?