Boosting Self-Esteem Can Backfire In Decision-Making

Smart business leaders understand that confidence and self-esteem affects decision-making and ultimately a company's earnings.

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."