How to be a Bad Manager: The Pygmalion Effect

“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.”

(Daido and Itoh)

Bad Vibes

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.

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Market Confidence, Tricks and Placebos

Shotguns and Phantasms

We hear, frequently, about how important “confidence” is for markets. Clearly this is true: when people are confident in the future they make investments and when they’re not they hunker down under the bed with a stash of cash and a shotgun.

Unfortunately confidence is a self-fulfilling prophesy and we are, it seems, particularly prone to living out our fantasies, no matter how stupid they may seem in retrospect. You see, confidence is a psychological trick of the mind, a phantasm evolved to lure us into unwise investments, as wicked a behavioural bias as you’ll find in a long list of the usual suspects.

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Trading On The Titanic Effect

Scary Tactics

If you’re sailing icy seas you’d generally want to keep a watchful eye open for icebergs. Unless, of course, you’re in an allegedly unsinkable ship, in which case you’d probably prefer to opt for a spot of partying and an early snooze on the poop deck instead. The craft’s designers will likely not have bothered with wasteful luxury items like lifebelts, emergency flares or lifeboats either: what would be the point?

You have, of course, just fallen foul of the Titanic Effect, one of a number of self-fulfilling behavioural biases where your expectations bias your behaviour and make it more likely that you’ll fall foul of the very problems you think you’ve overcome. Oddly, though, the problem suggests the solution: scare the living daylights out of the crew before you cast off.

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