Halo Effect

QUOTE

Edward Thorndike once said…

“First impressions are often wrong, but they stick with us.”

(American psychologist.)

CONCEPT

Halo Effect

The Halo Effect describes how our overall impression of a person, a company, or a brand can be influenced by one positive trait.

This means that if we see someone as attractive or friendly, we are more likely to assume they are also intelligent, kind, or capable.

The Halo Effect bias can extend to various areas of life, including business, education, and personal relationships, leading us to make potentially erroneous judgments about others based on superficial qualities.

STORY

Look the Part … Perform the Role?

Elizabeth Holmes founded Theranos in 2003 with the promise of revolutionizing the medical industry using technology that could run comprehensive tests with just a few drops of blood.

Holmes, a Stanford drop-out who modeled her persona after revered tech icons like Steve Jobs, captivated investors and the media with her vision, ambition, and personal charisma.

Holmes's articulate and confident demeanor, coupled with her claims of a groundbreaking medical breakthrough, created a strong Halo Effect. Her apparent dedication to a noble cause—making blood testing cheaper and more accessible—enhanced her image as a visionary leader in healthcare innovation. High-profile board members and investors, including former Secretaries of State, a former Secretary of Defense, and well-established business figures, added to the credibility and allure of Theranos.

This positive perception led to Holmes raising over $700 million from investors and achieving a company valuation of $9 billion.

Forbes even named her the world’s youngest self-made female billionaire in 2014. However, the technology Holmes touted did not work as claimed. The company's practices came under scrutiny after a series of investigative articles by the Wall Street Journal in 2015, which questioned the validity of Theranos's technology and testing methods.

The unraveling of Theranos began as further investigations revealed that the company had engaged in massive fraud, using commercial analyzers for their tests while claiming to use proprietary technology.

Holmes's ability to initially deflect scrutiny and maintain investor confidence was significantly aided by the Halo Effect, where her projected image and the company's potential overshadowed hard evidence and critical evaluation.

In 2018, Holmes was charged with massive fraud, and by 2022, she was convicted on several counts, including defrauding investors.

The Theranos scandal is a stark reminder of how the Halo Effect can be manipulated to mask underlying falsehoods, leading even savvy investors and officials to overlook glaring discrepancies and red flags.