The Pygmalion effect, or Rosenthal effect, is a psychological phenomenon in which high expectations lead to improved performance. This effect is named after the Greek myth of Pygmalion, a sculptor who fell in love with a statue he had carved. Alternately, in 1964 psychologist Robert Rosenthal hypothesized that reality can be positively or negatively influenced by our expectations of others. For example, positive expectations influence performance positively and negative expectations influence performance negatively.

How does the Pygmalion Effect work?

1. People’s beliefs and expectations affect their action towards others.

2. These actions impact the beliefs and expectations of what these other people hold true about themselves.

3. The beliefs then in turn impact the performance of others.

4. The initial belief and expectations of others are verified. 

The cycle again goes back to 1 where the actions start to become reinforcing.

How to apply the Pygmalion Effect positively:

1. Be aware of self-expectations: Instead of spotting weaknesses in people, it is necessary to look at the positives and potentials of the individuals.

2. Identify Positive Traits:  Identifying positive traits among others also lifts self-expectations on these people. 

3. Create Challenges: If an individual is challenged, they do not only  exceed the challenger’s expectations but also their self-expectations

4. Positive Language: By complimenting others and identifying the strengths they have shown, create positive expectations for them.

 5. Provide Feedback: Whether it is a student, employee, or someone else, it is important to provide actionable feedback which encourages the person to improve and develop.

However, an educational psychologist Robert L. Thorndike described the poor quality of the Pygmalion study and criticized it. Despite the flaws, Pygmalion effect has become widely popular not only in traditional teaching settings but also in various professional settings.