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The Pygmalion effect (or Rosenthal effect) refers to situations in which students perform better than other students simply because they are expected to do so.
Rosenthal & Jacobson (1968/1992) report and discuss the Pygmalion effect at length. In their study, they showed that if teachers were led to expect enhanced performance from some children, then the children did indeed show that enhancement. In some cases such improvement was about twice that showed by other children in the same class.
Example: an IQ study
The biggest study was at "Oak school" (an otherwise unidentified US primary school). Teachers were deceived into believing that a set of one fifth of their class were expected to develop much faster than the rest, as measured by IQ points. In fact, this set was randomly selected, or rather selected by stratified random sampling, giving a better guarantee that the participants were extremely similar in both mean and variation to the rest of the class.
The main measure was a kind of IQ test, administered at the start of the school year (pretest) and at four months (end of first semester), eight months (end of second semester and of first year of school), and 20 months (end of second school year with a different teacher). Maximum overall effect was found at eight months, but a lot of gain was still present at 20 months. There was a big effect on first and second grade children by the end of the first year. By the end of the second year, much of the improvement differential had disappeared from those classes, but in other classes positive effects had emerged for the first time.
Girls and boys gained in somewhat different ways (verbal vs. reasoning subscales). The advantage was true of pre/post testing using an IQ test. It was also true of teacher assessments, e.g. reading grades, which showed a big effect with the third grade group as well. They also did blind re-testing of a sample by an examiner who was not the teacher and who didn't know which were supposed to do well; here they got results showing a greater difference.
Another effect was that pupils in the control group who improved against expectation were disliked by teachers, or at least showed signs of conflict with them.
This is the biggest and most careful study. Besides primary school pupils, it has also been shown for algebra at the United States Air Force Academy and for university students as well. [How to reference and link to summary or text]
Comments on the effect
One educational reformer concluded:
- "Labeling matters, and the younger the person getting the label is, the more it matters." 
James Rhem, executive editor for the online National Teaching and Learning Forum (www.ntlf.com), commented:
- "When teachers expect students to do well and show intellectual growth, they do; when teachers do not have such expectations, performance and growth are not so encouraged and may in fact be discouraged in a variety of ways."
- "How we believe the world is and what we honestly think it can become have powerful effects on how things turn out."
- "Rosenthal acknowledges how frustrating it is to know how powerfully teacher expectation affects student performance and not to know how to immediately use that information to improve teaching across the board." 
There is more on this study at Hawthorne effect.
Rosenthal took the name for his concept from the George Bernard Shaw play, Pygmalion, later popularized by the musical My Fair Lady. The character Henry Higgins believes the cockney flower girl Eliza Doolittle can be made into a lady. Higgins' belief in her is a strong factor in her decison to become one. In turn, the play was named after the ancient myth of Pygmalion and his statue, which the gods brought to life for him.
- Schugurensky, Daniel History of Education: Rosenthal and Jacobson publish Pygmalion in the Classroom.
- Rosenthal, Robert and Jacobson, Lenore. Pygmalion in the Classroom: Teacher Expectation and Pupils' Intellectual Development. Irvington Publishers: New York, 1992.
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