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Hawthorne Effect


The Hawthorne Effect is a psychological phenomenon that occurs when individuals change or improve their behavior, simply because they are aware that they are being observed. It’s named after the famous Hawthorne studies conducted at the Western Electric Company in the 1920s, which examined the effect of various workplace conditions on productivity. In finance, the Hawthorne Effect may influence investment behavior or corporate performance when companies are under increased scrutiny or attention from investors, regulators, or the public.


The phonetic pronunciation of “Hawthorne Effect” is: /ˈhɔːθɔːrn ɪˈfɛkt/

Key Takeaways

  1. The Hawthorne Effect refers to the tendency of individuals to modify or improve their behavior when they are aware of being observed.
  2. It originated from a series of studies conducted at the Hawthorne Works factory in the 1920s and 1930s, where researchers observed that productivity increased not only due to physical changes in the workplace but also because of the employees’ perception of being studied.
  3. The Hawthorne Effect is an important consideration in research methodology and workplace management, as it reminds us that people’s behavior can change in the presence of an observer, and thus, these changes should be accounted for when interpreting results.


The Hawthorne Effect is an important business and finance term as it highlights the impact of human behavior on productivity and performance. It refers to the phenomenon where workers improve their performance simply because they know they are being observed or their work is being evaluated. This effect emphasizes the need for managers and researchers to be cautious when interpreting results from their interventions or attempting to implement new strategies within an organization, as the mere act of observation or introducing changes might influence the outcomes. Consequently, the Hawthorne Effect reminds managers and executives about the importance of understanding human psychology and incorporating it into the overall management and decision-making process to foster a more conducive and productive work environment.


The Hawthorne Effect serves a significant purpose in the realm of business and finance, where it is employed to understand the influence of external factors on employee productivity and behavior. The term originated from a series of studies conducted at the Hawthorne Works factory in the 1920s, which found that workers tended to perform better and display improved attitudes when they were aware they were being observed or were part of an experiment. This phenomenon helps managers and stakeholders gain insights into how changes in the work environment, management styles, or company policies can impact overall performance and workforce morale.

In practical applications, organizations can utilize the Hawthorne Effect as a driving force to enhance employee motivation and productivity by introducing varying management approaches or developing new strategies to address performance gaps. Continuous monitoring and feedback from employees are crucial in determining which changes lead to favorable outcomes, thereby allowing businesses to fine-tune work processes and remain competitive in their respective markets. While the Hawthorne Effect may not provide a one-size-fits-all solution, it nudges organizations to understand the importance of employee perception and foster a culture that actively responds to their needs, ultimately leading to improved efficiency, job satisfaction, and sustained growth.


The Hawthorne Effect refers to the phenomenon where individuals improve or modify their behavior in response to being observed, rather than due to any actual changes in their work conditions. Here are three real-world examples related to business and finance:

1. Factory Productivity Study: The most famous example of the Hawthorne Effect comes from its namesake—the Hawthorne Works factory experiments conducted by Elton Mayo between 1924 and 1932. Researchers observed employees’ productivity levels and made changes to the working conditions, such as adjusting the lighting levels, giving employees regular breaks, and shortening workdays. They found that regardless of the changes made (even when conditions returned to their original state), productivity increased simply because the employees knew they were being observed.

2. Sales Improvement Programs: In a retail business implementing new sales training, the initial increase in sales after the training might be due, in part, to the Hawthorne Effect. Employees aware of the new program and being observed may modify their behavior to meet the expectations set by the training, resulting in higher sales. This increase in performance might not be sustained once the observation and attention fade away.

3. Call Center Performance: Call center managers often monitor the performance of their agents, sometimes listening in on phone calls or analyzing statistics related to call handling. When agents are aware that they are being monitored, they may modify their behavior to adhere more closely to best practices and improve their performance. The change in behavior is not necessarily due to the changes implemented by management, but rather the result of the agents’ knowledge of being observed.

Frequently Asked Questions(FAQ)

What is the Hawthorne Effect?

The Hawthorne Effect is a psychological phenomenon that occurs when individuals improve or modify their behavior in response to being observed or monitored, usually during a study or experiment. The term was first coined after a series of experiments conducted at the Western Electric Company’s Hawthorne Works in the late 1920s.

How did the Hawthorne Effect get its name?

The name originates from the location where this phenomenon was first observed – the Western Electric Company’s Hawthorne Works factory in Cicero, Illinois. Researchers conducting experiments on employee productivity observed the psychological phenomenon and named it after the factory.

How does the Hawthorne Effect impact research and experiments?

The Hawthorne Effect introduces the possibility of bias in research and experiments, as participants may alter their behavior due to the awareness of being observed or monitored. This can impact the validity and reliability of study results, making it difficult to generalize the findings to real-world situations.

What were the original Hawthorne Studies?

The original Hawthorne Studies were a series of experiments conducted between 1924 and 1932, aimed at examining the impacts of various workplace conditions on employee productivity. The researchers observed that employee productivity increased simply due to the awareness of being studied, rather than the specific changes made to their working conditions.

Can the Hawthorne Effect be controlled or minimized in research?

While it may be challenging to completely eliminate the Hawthorne Effect, researchers can take steps to minimize its impact. Some methods include using control groups, maintaining participant anonymity, using unobtrusive observations, and employing a double-blind study design.

How is the Hawthorne Effect relevant in the business and finance world?

Understanding the Hawthorne Effect is essential for organizations conducting internal research or implementing changes in the workplace. It can help organizations better interpret the effects of new practices or policies and enable researchers to design more effective studies to minimize biases. It serves as a reminder that employees may change their behavior when they are aware of being monitored and helps managers to account for this phenomenon when assessing interventions.

Related Finance Terms

  • Productivity Improvement
  • Employee Motivation
  • Workplace Observation
  • Behavioral Studies
  • Management Techniques

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