EppsNet Archive: Business

The Halo Effect


The halo effect is a cognitive bias whereby people tend to make specific inferences on the basis of a general impression. It was first identified by psychologist Edward Thorndike in 1920. I read an interesting article this weekend by Phil Rosenzweig, the author of The Halo Effect: … and the Eight Other Business Delusions That Deceive Managers, on the halo effect in the business world: Imagine a company that is doing well, with rising sales, high profits, and a sharply increasing stock price. The tendency is to infer that the company has a sound strategy, a visionary leader, motivated employees, an excellent customer orientation, a vibrant culture, and so on. But when that same company suffers a decline–if sales fall and profits shrink–many people are quick to conclude that the company’s strategy went wrong, its people became complacent, it neglected its customers, its culture became stodgy, and more. In fact,… Read more →

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