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Halo Effect: A Business Literature Review

Halo effect is a psychological term that has been utilized in many areas and disciplines of business.  First, it is important to recognize the origin of the term before moving forward with how it influences current research.  Rosenzweig (2007) states that the term halo effect was “[f]irst identified by American psychologist Edward Thorndike in 1920, the halo effect describes the basic human tendency to make specific inferences on the basis of a general impression” (p.7). This basic understanding of the history of halo effects lead to a discussion on how its presence impacts current research studies.  To begin this discussion, it is important to understand some basic background information.  Once this background information is discussed, general factors and specific factors as they relate to halo effects and current research studies can be discussed.  The basic definition, types of halo effects, patterns in basic decision-making and inference making, and explanations of existence of halo effects are topics in the general discussion of halo effects.  The business definition, types of halo effects, corporate social responsibility in inference making, and explanations of existence of halo effects are topics in the specific discussion of halo effects in regards to business.  Final thoughts and conclusions, will tie the general factors to the specific factors in order to determine what current research studies state about halo effects.

Introduction of Background Information

The halo effect is a rater error or bias that is widely known in multiple areas and disciplines of research.  The two most widely known areas and disciplines of research in which this form of rater error or bias is present are psychology and business.  However, the halo effect can be present in other areas and disciplines as well.  Dagger, Danaher, Sweeney, and McColl-Kennedy (2013) recognize this by stating that “[h]alo effects have been reported in numerous fields, including social psychology, consumer studies, human resource management, and marketing.  Normally, halo effects are observed to occur across all attributes”  (p. 489).  Even though halo effects are observed to occur all attributes, this does not simplify a study conducted by a business researcher because attributes tend to be ambiguous.

Cooper and Schindler (2014) state that “[h]alo is especially difficult to avoid when the property being studied is not clearly defined, is not easily observed, is not frequently discussed, involves reactions with others, or is a trait of high moral importance” (p. 275). This is caused by the ambiguity of attributes that make them difficult to evaluate.  Dagger, Danaher, Sweeney, and McColl-Kennedy (2013) recognize this by stating that “.... attributes are ambiguous, difficult to evaluate, or for which the consumer has low familiarity are more vulnerable to halo effects from frontline employees.  That is, the halo effect is selective, being more pronounced for difficult-to-evaluate attributes” (p. 489).  Fortunately, there are many ways to counteract this rater error or bias available to the business researcher.  Cooper and Schindler (2014) go on to state that counteractions to the halo effect

.... include having the participant rate one trait at a time, revealing one trait per page (as in an Internet survey, where the participant cannot return to change his or her answer), or periodically reversing the terms that anchor the endpoints of the scale, so positive attributes are not always on the same end of each scale.  (p. 275)

Now that a basic understanding of the halo effect has been recognized as it relates to multiple areas and disciplines of research and attributes, it is important to recognize a few of its basic definitions and business definitions.

Basic and Business Definitions

Before exploring what current psychological and business research states in regards to the halo effect, it is important to recognize a few of its basic definitions as viewed by psychology and business definitions.  Cooper and Schindler (2014) define halo effect as “.... the systematic bias that the rater introduces by carrying over a generalized impression of the subject from one rating to another” (p. 274).  This seems like a simplified, basic definition that covers most bases of halo effects, but it is not the only one.  Another study presents one that proves to be just as simple and basic while covering additional bases.  Jang, Lee, and Hu (2016) states that “.... the halo effect is defined as one's tendency to allow his or her overall perception of an individual to influence his or her evaluations of that individuals in regard to all other attributes or dimensions” (p. 274).  However, this simplified, basic definition can be extended as it specifically relates to business.  Vance, Raciti, and Lawley (2016) state that “[h]alo effects in consumer research are defined as a tendency for a consumer's beliefs about one dominant brand association to influence their other beliefs about a brand” (p. 1).  This definition can be recognized and applied in another manner.  Sundar, Kardes, Noseworthy, and Clarkson (2014) extends this business definition by stating that “.... research offers insight into how a single attribute can bias a consumers global inferences about the product that can, in turn, influence subsequent inferences toward unrelated attributes (i.e., the halo effect).  Adding to these definitions, another study recognizes that there are two widely known types of halo effects in business.

Types of Halo Effects in Business

The two widely known types of halo effects tend to protect the reputation of a business.  Coombs and Holladay (2006) state that “.... a favorable reputations may create a halo effect that protects and organization's reputation from any reputation loss” (p. 125).  The study continues by recognizing and defining these halo effects as (1) halo as benefit of the doubt and (2) halo as shield.  Coombs and Holladay (2006) define halo as benefit of the doubt as “..... the holistic evaluation of a person or organization is assumed to affect specific judgments about the person or organization” (p. 125).  This can create a positive reputation for the person or organization.  Coombs and Holladay (2006) define halo as shield as “.... part of the larger psychological phenomenon of expectancy confirmation.  Research suggests people are reluctant to revise initial expectations even when confronted with clear disconfirming evidence” (p. 125).  Although these seem like two very possible types of halo effects, they are not the only ones.  Another study recognizes that there is at least one other type of halo effect.  

As stated, another study in current research states that there is another type of halo effect.  This type of halo effect is coined as the term perverse halo.  Borah and Tellis (2016) defines this type of  “.... ‘perverse halo' as the phenomenon whereby negative chatter about one nameplate spills over into negative chatter for another nameplate” (p. 144).  This can be also known as spillover effect.  Borah and Tellis (2016) go on to state “.... that if a consumer thinks nameplate A is diagnostic of (i.e., informative about) nameplate B, the consumer will use perceptions of nameplate A's quality to infer the quality of nameplate B” (p. 144).  The study concludes with quite a few key findings of perverse halo effects.  Borah and Tellis (2016) characterize perverse halo effects as the following: (1) extensive, (2) asymmetric, (3) strong between brands of the same country, (4) have a short wear-in period and a modest wear-out period, and (5) affects performance in sales and stock market (p. 156-157).  The important thing is that companies protect themselves from the presence of halo effects.  The study concludes by stating that “[s]ocial comparison theory suggest that firms can protect their social image or status by avoiding comparisons with less reputable rivals” (Borah and Tellis, 2016, p. 157). Now that a few types of halo effects have been identified, it is important to explore the causes of halo effects and why they become present in the first place.

Patterns of Decision-Making and Inference-Making

According to current research, the halo effect can explain four patterns of decision-making.  Florea (2015) recognizes the first pattern by stating that it “.... consists of consumer's struggle to justify his negative attitude towards a brand, product, or product category by identifying and exaggerating a manifold o frisks associated with a certain purchase, despite no bad experiences” (p. 207).  This struggle relates to borrowed attitudes.  Florea (2105) goes on to recognize that “[t]he next two patterns start form a favorable attitude towards a brand or product. This attitude drives whether to risk denial or to acceptance but minimization and passing-by of its harmful potential” (p. 207-208).  The fourth pattern deals with an undesired outcome caused by risk.  The same author recognizes this by stating that “[c]onsumers included in this pattern tend to overrate the magnitude or the recurrence probability to the detriment of other risks, exhibiting tunnel vision” (Florea, 2014, p. 208). The recognition of these four patterns can potentially allow companies to be able to look for signs and prevent such halo effects from occurring or use them to their advantage. Since these patterns relate to individuals making inferences, it is important to see what current research says in regards to this inference-making process and how it relates to the presence of halo effects.

When it comes to making inferences, consumers tend to rely on prior beliefs to help them form an opinion of employees, products, and the business overall.  Sundar, Kardes, Noseworthy, and Clarkson (2014) recognize this by stating “.... the consumer's ability to evaluate evidence presented in an unbiased manner requires a cognitive style commonly known as critical thinking” (p. 377).  This line of thinking enables the consumer to overcome the halo effect by overcoming any biased thinking that may arise.  The same authors go on to state that “[t]his style of thinking requires individuals to think through a problem by decontextualizing themselves from it, such that assumptions presented can be considered in a more objective manner (i.e. absence of personal biases) when processing information” (Sundar, Kardes, Noseworthy,  & Clarkson, 2014, p. 377). Both internal and external factors can influence critical thinking in which people draw these inferences from.  

Raggio, Leone, and Black (2014) state that consumers “.... construct their evaluations from a combination of two mental sources: one containing overall brand information and another containing detail attribute-specific information.  Consider these two sources ‘informational buckets'” (p. 134).  Consumers draw from each bucket in order to construct their evaluations.  Raggio, Leone, and Black (2014) recognize this by stating the following:

.... part of an evaluation is pulled from what they know about a branded offering's attributes, features, ingredients, etc, and part of it comes from what they know about the overall brand based on its positioning in the marketplace, established, through the brand's promise of benefits, advertising, word-of-mouth. (p. 134)

It is important to recognize these when dealing with the potential threat of a halo effect.  However, these are not the only important factors to consider.

Corporate Social Responsibility in Business and Inference-Making

Another factor that plays into a consumer's inference-making process is that of a company's level of social corporate responsibility.  Chernev and Blair (2015) state that “.... consumers tend to draw inferences from a company's socially responsible behavior, such that products produced by companies involved in charitable giving are evaluated as performing better than those produced by companies not known for their charitable work” (p. 1415).  This directly relates to the role and presence of halo effects.  Chernev and Blair (2015) conclude by stating that the halo effect “.... will be more pronounces when the motive behind the company's actions is aligned with consumers' moral values” (p. 1420).  This shows that the company is not at a complete loss with the presence of a halo effect if their values coincide positively with their consumers' values.  However, if consumers see a company displaying corporate social responsibility, then a halo effect will be present if it causes the consumer to look over any corporate social irresponsibility.  Walker, Zhang, and Yu (2016) recognize this in their study by concluding that “[n]ot only are increasing levels of CSR related to various measures of firm performance, but it has an overwhelming positive influence on firm performances in the presence of CSiR. Thus, we find strong support for the existence of an angel-halo effect” (p. 719).  There is a need for companies to be careful when it comes to the presence of the halo effect.

Continuing with the halo effect in regards to corporate social responsibility, another study finds that there is a positive relationship between the two.  A current research study begins with the premise that “[t]here reason are often cited for why corporate social responsibility is vital: product quality signaling, delegated giving, and the halo effect” (Hong & Liskovich, 2015, p. 1). Corporate social responsibility tends to generate a halo effect for an organization.  This leads researchers to understand a more extensive explanation as to why corporate social responsibility is valuable and vital to the halo effect.  Hong and Liskovich (2015) recognize this by stating that CSR is valuable because

.... it generates a halo effect, a cognitive bias long documented by psychologists in which one's judgment of a person's character can be influenced by one's overall (and usually first) impression of him or her with little actual knowledge of the individual.  Such halo effect considerations do influence how businesses are run.”  (p. 2)

This seems to give a positive outlook for the presence of halo effects, which generally tend to carry a negative connotation.  The study states that their findings “.... cannot pin down how important such halo considerations are for corporations when they make their optimal CSR choices --- only that there is such effects associated with these choices” (Hong and Liskovich, 2015, p. 6).  However, the same authors provide another positive note.  They state that “[t]he halo effect is generated by responsible behavior with respect to employees, products, diversity, and community” (p. 17). This, again, shows the positivity of the presence of halo effects. Next, it is important to see what current research states about why halo effects exist.

Existence of Halo Effects in General

Many possible explanations exist to determine why there is an existence of the halo effect.  One study recognizes one possible explanation can be cognitive consistency.  Jang, Lee and Hu (2016) state that “[c]ognitive consistency theory asserts that individuals tend to seek uniformity in their beliefs and attitudes” (p. 274).  However, the better explanation is due to inconsistency.  Jang, Lee, and Hu (2016) go on to state that “[i]nconsistency between one's expectations and what actually occurs creates a state of cognitive dissonance that motivates changes in behavior to ease the tension” (p. 274).   In this case, the halo effect is seen as a way to restore cognitive consistency and is known as confirmation bias.  This affects the rater in two different ways.  The first way is when the rater is familiar with the individual or organization they are rating.  Jang, Lee and Hu (2016) recognize that “.... raters who are familiar with an individual tend to be more objective in their ratings of that individual resulting in a relatively limited halo-and-horns effect” (p. 274).  The second way is when the rater is not familiar with the individual or organization they are rating.  Jang, Lee, and Hu (2016) state “.... when raters lack knowledge of the individual to be rated, they tend to rely on their general impression of the individual profile to provide consistent ratings across all the individual's attributes” (p. 274).  However, this is not the only possible explanation for why halo effects exist.

Another possible explanation that exists to determine why there is an existence of the halo effect is one of global evaluation.  Utami, Kusuma, Gudono, and Supriyadi (2017) state that “[t]he halo effect appears because global evaluation on a certain object during the initial phase affects the detailed evaluation in subsequent stages.  A holistic assessment of the information provided will reduce the diagnosability of the analytical information given on specific attributes of a certain object....”  (p. 213). As with all current research, this study defines the halo effect but takes it a step further with stating what the definition implies.  Utami, Kusuma, Gudono, and Supriyadi (2017) state that “[t]his definition implies that the halo effect is someone's tendency to rely on the general assessment of a certain object or individual in order to assess some specific dimensions of that object or individual” (p. 213).  Again, this study recognizes that companies be aware of the presence of halo effects.  To simplify all of these explanations as to why halo effects exist and apply them to the business world, it is important to answer the question of how the halo effect is manifested in the business world.

Existence of Halo Effects in Business

Current research relays information to provide one, unified answer to the question that many researchers wish to know.  Rosenzweig (2007) recognizes this question as the following: “How is the halo effect manifested in the business world?” (p. 7).  In order to determine this, a business researcher can turn to current research that identifies the presence, causes, and effects of such halo effects in the world of business.  Rosenzweig (2007) identifies this by stating “when a company is doing well, with rising sales, high profits, and a surging stock price, observers naturally infer that it has a smart strategy, a visionary leader, motivated employees, excellent customer orientation, a vibrant culture, and so on” (p. 7).  However, there is a converse to this.  Rosenzweig (2007) recognizes this converse by stating that “[w]hen that same company suffers a decline----when 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” (p. 7). In order to understand halo effects, it is important to recognize both sides of the coin and how they relate to one another.  This explanation provides a simplified and unified reason as to how the halo effect plays a role in business research.

Final Conclusions and Thoughts

As can be seen, a plethora of concepts that factor into understanding halo effects in its entirety.  Raggio, Leone, and Black (2014) recognize these many factors by stating that ‘“[h]alo' is a theoretically and empirically robust factor that impacts many different types of consumer evaluations” (p. 133).  It is important to recognize and understand halo effects as a general term before attempting to apply it to a specific area of research.  Raggio, Leone, and Black (2014) state that “.... recent research demonstrates the impact of halo effects on factors such as global product quality and corporate social responsibility, brand-image associations, brand extensions, and country of origin effects” (p. 133).  The general factors to be understood are the basic definition, types, patterns in basic decision-making and inference making, and explanations of existence.  Once this general understanding is reached, then it can be recognized and understood in how it relates to the world of business.  The specific factors to be understood in relation to business are business definition, types, corporate social responsibility in inference making, and explanations of existence. Rosenzweig (2007) states that while “[t]he halo effect may seem at first like harmless hyperbole that helps reporters tell a coherent and satisfying story. In fact, however, the halo effect is pervasive in the business world and affects much more than journalistic accounts” (p. 8).  This gives business researchers a reason to recognize all the factors from general to specific in order to get a complete understanding of what it all entails.  Further research studies should be conducted in order to give a clear understanding of halo effects and how they influence the world of business.

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