The Pygmalion effect is the much-observed finding that a leader's high expectations for their subordinates, if clearly communicated and followed up by supporting behaviours, translate into higher achievements for those subordinates. The leader paints the possibility of another possible self that the subordinate could become - 'be all you can be' - if they apply themselves and follow the path. Thus inspired, the subordinate fixes themself on the new horizon, and with guidance, surpasses themself. The leader keeps the horizon visible, a function termed 'the maintenance of hope'. As you can see, the orthodox view of this is rather unidirectional - leader transmits, others receive. In a theoretical paper, Leonard Kararkowsky, Nadia DeGama and Kenneth McBey unpack how the subordinate is likely to be a crucial factor in this effect: for them, it all comes down to trust.
Trust involves at its base a willingness to be vulnerable and put yourself in anothers hands, believing they will not let you down. Clearly the Pygmalion effect involves risk, as it calls for individuals to abandon old behaviours and strive for something currently beyond them. So it's reasonable to believe trust plays a part. Just how might it do so?
Firstly, the authors note that for trust to occur, the individual has to believe that the trustee has the ability to deliver. This is a cool, cognitive component of trust. Does this leader have the nous to get me from the present to the new possibility? And even before this, do I believe they possess good enough judgment to spot talent? If this trust is present, then the manager's high expectations can raise the subordinate's self-expectations, and with it self-efficacy and motivation to perform.
Just because they can, doesn't mean they will. So trust also relates to beliefs about a person's integrity: how reliable they are, whether their words meet their actions. Coupled with this is an even more important factor: benevolence. While integrity and capability are concerns to coolly appraise, benevolence involves emotional feelings of loyalty and attachment, the sense that this individual cares for you and will go beyond obligations to see you right. When leader Pygmalion behaviours - goal setting, feedback, advice - are viewed through the prism of integrity and benevolence, the subordinate can view them as one side of a social contract, where the leader is delivering effort (integrity) for the subordinate's good (benevolence). This calls for reciprocity from the subordinate, in the form of renewed efforts and changes in their own behaviour.
Karakowsky and colleagues note that the effect has been most deeply researched in educational and military settings - settings where respect for the other's authority and integrity is taken for granted. The military setting in particular is heavily masculine, which may explain why the research often fails to find the effect with female leaders, who may be perceived through social stereotyping as less capable due to misfit to masculine activities. The authors conclude that for Pygmalion to be fully understood, we need to understand the influence of trust and the active role that subordinates need to take for change to occur.

Further reading:
White, S. S., & Locke, E. A. (2000). Problems with the Pygmalion effect and some proposed solutions. The Leadership Quarterly, 11, 389–415. DOI: 10.1016/S1048-9843(00)00046-1
I believe that the Pygmalion effect has a lot to do with neurotransmitters. Getting to this effect would be difficult with trust issues and other problems. But once there, when the leader paints the possibility for someone that trusts him/her and the person cares out that possibility Dopamine is most like released in the brain as a rewarding sensation for accomplishing the task. The next time the leader paints another possibility the person will want to feel that satisfaction again, so the likelihood of them completing the task in higher.
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