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Halo frequently discussed, involves reactions with others,

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 “first 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.

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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 “halo 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
“halo 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
“halo 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 “social
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 “the 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 “consumers 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 “this 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 “not 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 “there 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 “the
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 “cognitive 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 “inconsistency 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 “the 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 “this 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 “when 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 ‘”halo’ 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 “the 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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