The Pygmalion Effect

The Pygmalion Effect

What is the Pygmalion Effect?

The Pygmalion effect is a psychological phenomenon where higher expectations from individuals lead to an increase in their performance. It occurs when an individual or group is expected to perform well, and as a result, they do.

The Pygmalion effect is also known as the "self-fulfilling prophecy," where positive expectations lead to positive outcomes and negative expectations lead to negative outcomes.

This phenomenon is also known as the "Rosenthal effect," named after the psychologist who first discovered it in a study in 1968. This study by Harvard University Professor Robert Rosenthal and elementary school principal Leonore Jacson showed that the behaviour of students is influenced by the expectations teachers place on them.

History of the Pygmalion Effect

In the 1960s, Robert Rosenthal and Lenore Jacobson conducted a study in which they told teachers that some of their students were expected to have significant academic growth that year based on test scores. However, the students were chosen randomly, and the expectations were not based on any real data. By the end of the year, the students who were classified as "high growth" actually showed significant academic improvement, regardless of their actual starting scores. This study demonstrated that the expectations placed on individuals can affect their behaviour and performance.

Understanding the Pygmalion Effect

Let's understand the Pygmalion Effect by using the following diagram:

A flow chart illustrating the Pygmalion Effect.

This diagram shows a circle where our beliefs about another person's abilities influence our actions toward the other person. This action has an impact on the other's beliefs about themselves; the beliefs about themselves cause the other's actions toward us, which again reinforce our beliefs about that person, and so on.


Let's look at a simple example of how a teacher’s expectation shapes the behaviour of students. Let's start with

1. Your beliefs influence your actions.

Imagine you are an economics teacher in a high school, and you observe your class on the first day. Adam and Rio are new students in your class. Adam reminds you of a brilliant student from last year. Rio reminds you of an annoying boy from your high school years. Unconsciously, you decide what to expect from each one of them.

When Adam enters the classroom, you're happy to see him studying. You push him to do better and study harder. If he makes a mistake, you explain to him how to improve. When Rio comes in, you hardly notice him. You're glad to see him score, but you give him less attention. You don't give him much feedback and don't invest extra time in his studies. When Rio makes a mistake, you are a little annoyed. You have lower expectations from Rio.

2. Your actions impact their beliefs about themselves.

Adam feels you appreciate him, and he appreciates you in return. He believes in his own success. Rio feels you have little patience and appreciation for him. He does not believe in his own success and achievements.

3. Their beliefs about themselves cause their actions toward you.

Adam finds more and more joy in studying economics, and he never misses a class. He gives 100% all the time. Rio finds less joy in studying economics than before and doesn't give his full effort to his studies. He starts to miss the classes sometimes.

4. Their actions towards you reinforce your beliefs.

The actions of Adam and Joe reinforce your beliefs about them. You see how Adam enjoys studying, and shows a fast increase in his performance. Rio seems not to be very motivated. His performance has not increased much, and he has started to show up less. Your instincts were right, and your self-fulfilling prophecy about the two students came true. Your expectations have determined the behaviour and performance of students. This is the Pygmalion effect.

How the Pygmalion Effect Influences Economic Outcomes

In economics, the Pygmalion effect can shape economic outcomes by affecting how individuals, markets, and institutions behave.

For instance, when investors expect a particular stock to perform well, they are more likely to invest in it, which can drive up its price. This, in turn, can create a self-fulfilling prophecy as the stock's rising price reinforces the initial expectation, leading more investors to buy in.

Similarly, when policymakers expect inflation to rise, they may raise interest rates to combat it, which can lead to a contraction in the economy. However, if the expectation of rising inflation was unfounded, the policy response may have unintended consequences, such as causing a recession. This is an example of how the Pygmalion effect can shape economic outcomes through the expectations of policymakers.

The Pygmalion effect and the Consumer Behaviour

The Pygmalion effect can also play a role in determining consumer behaviour. When consumers expect the price of a product to rise in the near future, they buy more quantity of that product, which shifts the demand curve of that product towards the right, leading to an actual rise in the price of the product according to the initial expectation of the consumers. It is shown by the following diagram.

A diagram illustarting the effect of rise in the demand of a product on its market.

The Pygmalion effect and the Government Regulations

If the government's regulators believe that a particular industry or market is risky, they may implement strict regulations that can suppress innovation and growth. This can create a self-fulfilling prophecy, as the regulations reinforce the belief that the industry is risky, leading to fewer investment and growth opportunities.

The Pygmalion Effect in the Labour Market

The Pygmalion effect can also impact the labour market by affecting the expectations of workers and employers. For example, if an employer has high expectations of a particular employee to perform well, they may provide them with better training and opportunities for advancement. This, in turn, can lead to higher productivity and job satisfaction for the employee. Conversely, if an employer has low expectations for a worker, they may provide less training and fewer opportunities, which can lead to lower productivity and job dissatisfaction.


The Pygmalion effect is a powerful psychological phenomenon which explains that expectations can influence psychology, behaviour, and performance, leading to self-fulfilling prophecies. The Pygmalion effect has important implications for economics and can shape economic outcomes in a variety of ways. By being aware of this phenomenon and its potential impacts, economists, policymakers, and business leaders can make more informed decisions and promote more sustainable and equitable economic growth.