Boosting Self-Esteem Can Backfire in Decision-Making

EVANSTON, Ill., March 31 /PRNewswire-USNewswire/ -- Smart business leaders
understand that confidence affects decision-making and ultimately a company's
earnings.

(Logo: http://www.newscom.com/cgi-bin/prnh/20070801/DCW067LOGO )

But giving employees positive feedback in the hopes of promoting better
decisions sometimes can backfire, suggests new research from the psychology
department and the Kellogg School of Management at Northwestern University and
the London Business School.

Esteem-boosting feedback can backfire, the research suggests, when it is
closely linked to the particular skills that should have prevented the
questionable decision in the first place. Perceived threats to the ego can
actually escalate and increase the need to prove that a questionable decision
was the right one.

"The more that people's feelings of self-worth are wrapped up in a poor
decision they've made, the greater their impulse will be to justify it in some
way," said Daniel C. Molden, assistant professor of psychology at Northwestern
and one of the researchers.

Across several studies, the research examines how boosting self-esteem --
whether contemplating one's own accomplishments or receiving positive feedback
from others -- affects the face-saving impulse to justify and recommit to
decisions whose outcomes seem dubious at best.

The research will be published in an article titled "The Promise and Peril of
Self-affirmation in De-escalation of Commitment," currently in press at
Organizational Behavior and Human Decision Processes (published by Elsevier).

Research collaborators and co-authors of the article are Niro Sivanathan, lead
author and doctoral candidate in management and organizations at the Kellogg
School of Management at Northwestern; Molden; Adam Galinsky, Morris and Alice
Kaplan Professor of Ethics and Decision in Management at Kellogg; and Gillian
Ku, assistant professor of organizational behavior at the London Business
School.

In one study, participants, acting as senior managers of a large investment
bank, received feedback about how rational they were before revisiting a
hiring decision. After learning that the person they had hired was not working
out, they overwhelmingly recommended spending additional time and money on
training, rather than simply acknowledging the poor decision and cutting their
losses.

In contrast to the outcome of decision-relevant feedback, study participants
who received praise for skills unrelated to the questionable decision (e.g.,
creativity or innovation) or more global affirmation of positive qualities
were less likely to recommit to the decision.

In another study, participants, acting as chief financial officers, made a
decision to allocate $10 million of research and development funding to a
division of the company that was performing poorly. Those who tended to
already possess a global sense of high self-esteem, compared to those with low
self-esteem, decided to not throw good money after bad and did not reinvest as
much in the poorly performing division.

The research provides a framework for how organizations might most effectively
bolster their employees' self-esteem as well as the bottom line.

"Our research indicates that a supervisor could make a problem even worse when
he or she tries to restore the confidence of, say, the finance division by
reminding everyone that they are skilled analysts at the same time the current
allocation strategy is bleeding money and is in need of reassessment," said
Kellogg's Galinsky.

Such employees are likely to only feel more threatened by the feedback and
recommit to the failing strategy in the hope they could prove that they were
right all along.

With the present volatility of the stock market, findings of the research have
broad implications. "There always are some people who will continue to hang on
to stocks that are tanking in the belief that their judgment will be
vindicated in the end," said Northwestern's Molden. "Our research suggests
that these are more likely to be the people who take pride in being expert
analysts or who have received lots of accolades for past investment success."

The challenge is to instill confidence in people so they can change, rather
than justify, the course of a failing strategy, concluded lead author
Sivanathan.

NORTHWESTERN NEWS: www.northwestern.edu/newscenter/

SOURCE Kellogg School of Management at Northwestern University

Pat Vaughan Tremmel, +1-847-491-4892, p-tremmel@northwestern.edu or Megan
Washburn, +1-847-491-5446, m-washburn@kellogg.northwestern.edu, both of the
Kellogg School of Management at Northwestern University