Yi Zhou is an Florida State University professor who specializes in empirical asset pricing, volatility, credit risk, default risk and derivatives, and art and finance. In a paper titled "Narcissism and the art market performance," she positively correlates artist narcissism, measured by the signing (and sometimes dating) of artwork with art market performance, increasing an artist's prices by about 16%. While it seems obvious that narcissism and market performance could be correlated, never would I expect to see empirical proof that egomaniacs actually do sell more artwork and at higher prices. Below is the intro to Yi's fascinating and entertaining paper. Find the paper in entirety here.
Pablo Picasso, one of the greatest artists in history, demonstrated classical symptoms of narcissism. Picasso said, ‘God is really an artist, like me…I am God, I am God, I am God.’ Despite the fact that Picasso's romantic relationships provided inspiration for his masterpiece paintings and sculptures, such as, Head of a Woman (inspired by Fernande Olivier), Olga in the Armchair (inspired by Olga Khokhlova), The Dream (inspired by Marie-Thérèse Walter), The Weeping Woman (inspired by Dora Maar), and so forth, he drove his lovers to despair and even suicide with his betrayal and desertion (O'Brian 1994; Richardson 2007a,b, 2010). As one of Picasso's lovers, Françoise Gilot, recalled, Picasso said ‘Nobody has any real importance to me. As far as I'm concerned, other people are like those little grains of dust floating in the sunlight. It takes only a push of the broom and out they go.’ Later, when Françoise told Picasso she was leaving for good, Picasso laughed: ‘Nobody leaves a man like me. Nobody leaves Picasso.’ (Gilot 1989).
This paper shows that artists' narcissism positively and significantly impacts the auction prices and return on their artworks in the art market. This paper arrives at three major findings. The first is that narcissism is positively associated with the market performance of artworks. At the painting level, the greater the level of an artist's narcissism, the higher the market price of the art. A one standard deviation increase in narcissism increases the market price by 16% and both the highest and lowest auction house estimates by about 19%. In two subsamples for modern and contemporary artists respectively, a one standard deviation increase in narcissism increases the market price of art by about 25% for modern artists and by about 13% for contemporary artists. At the artist level, we demonstrate that controlling for an artist-fixed effect, the higher the level of an artist's narcissism, the higher the average market price of all artworks by the artist. The second major finding is that more narcissistic artists are offered a greater number of solo exhibitions and more group exhibits. They are included in more museum and gallery holdings and they are ranked higher by art scholars. These results contradict evidence from the current literature on narcissism in psychology (Paulhus 1998; Oltmanns et al. 2004; Campbell et al. 2005; Lakey et al. 2007; Back, Schmukle, and Egloff 2010). Specifically, the literature suggests that the fascination of the general public for narcissists is short term and transient. Our results indicate that art experts' recognition of narcissistic artists is, in fact, long lasting. The third major finding is that more narcissistic artists have higher rates of returns for their artworks compared to less narcissistic artists. A one standard deviation increase in narcissism increases the excess return of the market price of artworks by 11%.
Artists work independently. We use the art market to investigate the effect of narcissism on the creativity and productivity of artists, through auction houses and major art fairs, such as Art Basel,1 the Armory Show, the Venice Biennale, and so forth.2 One of the most direct measures of an artist's productivity and creativity is the market performance of her/his artworks. In general, when artists are more productive and creative, his/her artwork enjoys better market performance. Our paper investigates whether the works of more narcissistic artists outperform.
Our measurement of narcissism follows the research of Ham, Seybert, and Wang (2014), which shows that an area-per-letter measure is correlated highly with the score on the Narcissistic Personality Inventory scale, NPI-16. A rich literature on the narcissism concept has led to the development of a 40-item Narcissistic Personality Inventory, or NPI-40 (Raskin and Terry 1988), and a 37-item Narcissistic Personality Inventory, NPI-37 (Emmons 1987). These measures capture a range of different aspects, but their length and complexity limit their use in practical settings, in which time constraints and respondents' attention spans are major issues. Recently, Ames, Rose, and Anderson (2006) created and validated a shorter measure, the NPI-16, which closely parallels the NPI-40 and NPI-37 in their relation to other personality measures and dependent variables and which can serve as an alternative measure of narcissism. NPI-16 is the most efficient measure of narcissism in psychology compared to NPI-40 (Raskin and Terry 1988) and NPI-37 (Emmons 1987) and is uncorrelated with the proxy for overconfidence (Hirshleifer, Low, and Teoh 2012; Schrand and Zechman 2012; Hribar and Yang 2013).
We obtained the signatures of artists in our sample from Oxford Art Online (Benezit Dictionary of Artists). We used a custom software program to draw a rectangle around each artist's signature and displayed the dimensions, showing where each side of the rectangle touched the most extreme endpoint of the signature. The area of the signature is determined by multiplying the length and width of the rectangle. To control for the number of characters in an artist's name, we standardized the signature size measure by dividing the square area by the number of letters in the artist's signature to obtain the proxy. Thus, the length of the name itself does not affect our measure of signature size and narcissism.3 To measure the market success of artworks, we collected expensive and proprietary auction data from the online databases of artinfo.com and artprice.com and from websites of various auction houses. Our data contains transactions of major auction houses around the world from 1980 to 2012. To measure the experts' evaluations of artists, we collected data on group exhibitions, solo exhibitions, and museum and gallery holdings from Oxford Art Online (Benezit Dictionary of Artists). We also measured the importance of artists directly by compiling artist rankings made by art historians.
The term ‘Narcissism’ is from Metamorphoses, written by the Roman poet Ovid in 8 CE, which tells the story of Narcissus, a beautiful character in Greek mythology–who fell in love with his own reflection. Individuals with narcissistic personality disorder (NPD) display a grandiose sense of self – they not only believe themselves to be superior to those around them, but also expect others to acknowledge them as such (DSM-V 2013).4 They believe that they are deserving of special treatment and are ‘preoccupied with fantasies of unlimited success, power, brilliance, beauty, or ideal love’ (DSM-V 2013). Within psychology, ‘people with narcissistic personality disorder exhibit an exaggerated sense of self-importance and uniqueness, arrogance, an unreasonable sense of entitlement, exploitative tendencies, empathy deficits, and a need for excessive admiration’ (Baumeister and Wallace 2002).
The current literature on corporate finance focuses on the negative impacts of CEO narcissism on firms' financial policies. For example, Chatterjee and Hambrick (2007) show that narcissism in CEOs is positively related to strategic dynamism and grandiosity as well as to the number and size of acquisitions, and it provokes extreme and fluctuating organizational performance. Their results suggest that a narcissistic CEO favors bold actions that attract attention, resulting in big wins or big losses, but her or his firm's performance is generally no better or worse than that of firms with non-narcissistic CEOs. Aktas, Bollaert, and Roll (forthcoming) find that narcissistic acquiring CEOs are more likely to be the initiators of a transaction, tend to negotiate faster during the private part of the process, and are more likely to complete the transaction. They also show that target CEO narcissism is associated with higher bid premiums and lower acquired abnormal returns. Ham, Seybert, and Wang (2014) use the size of the CEO's signature on annual SEC filings to measure CEO narcissism. They find that CEO narcissism is associated with negative outcomes. It predicts overinvestment, less innovation and lower profit. Despite this negative performance, narcissistic CEOs enjoy higher compensation.
However, the psychology literature (Baumeister and Wallace 2002; Watts et al. 2013) has shown that narcissism can be advantageous or detrimental to creativity and innovation, depending on the conditions being examined. Baumeister and Wallace (2002) find that only under conditions in which the performance of narcissists can be clearly defined and acknowledged is there a positive relationship between narcissism and performance. When narcissists believe they will receive group recognition for their own performance, they outperform all others in the group. However, when narcissists are told that no one will be evaluated individually or that only the group's performance as a whole will be announced, they perform poorly. This internal drive to perform in front of an audience is the key to a narcissist's performance. Watts et al. (2013) find that narcissism in US presidents is associated with historians' ratings of the overall greatness of presidencies, also indicating that the narcissism may be a double-edged sword in management.
Our paper provides complementary and alternative findings to the current literature on corporate finance. We show that for an individual whose performance is clearly defined as narcissistic by the market and critiques, there is indeed a positive relationship between narcissism and performance. Our paper suggests that narcissism may have a constructive influence on CEOs or managers whose performance can be isolated from the group performance and can be rewarded as they may display star performances to win admiration. This is implied in the human-capital-centered new theory of the firm (Zingales 2000).
This paper is also related to the stream of literature that examines how managers' psychological biases or characteristics affect firm decisions (Bertrand and Schoar 2003; Baker, Pan, and Wurgler 2009), such as the theoretical models by Goel and Thakor (2008) and Gervais, Heaton, and Odean (2011); empirical studies on corporate investment distortions and value-destroying mergers by Malmendier and Tate (2005a; 2005b; 2008), and the research on unique personality traits of CEOs by Graham, Harvey, and Puri (2012). Hirshleifer, Low, and Teoh (2012) find that firms in innovative industries with overconfident CEOs have greater return volatility, invest more in innovation, obtain more patents and patent citations, and achieve greater innovative success for given research and development expenditures.
This paper is further related to the growing literature on how artists' psychological biases or characteristics affect creativity. Mei, Moses, and Zhou (2015) use the residual variance of art prices as a proxy for creativity, and they show that residual risk is significantly and positively related to the average price level, exhibitions, collections, and outperformance of artworks with respect to the market index. There is also a series of studies on the career cycles of creative people in various other fields, such as the visual arts, music, literature, film, science and so forth (Galenson and Weinberg 2000; Galenson 2001, 2006a,b, 2009b; Galenson and Kotin 2005; Galenson 2007; Galenson and Kotin 2008; Galenson 2009a, 2010; Jones, Reedy, and Weignberg 2014). Furthermore, a series of papers have discussed the art market returns measures by different datasets, such as Baumol (1986), Goetzmann (1993), Mei and Moses (2002), Goetzmann, Renneboog, and Spaenjers (2011), Renneboog and Spaenjers (2013) and Korteweg, Kräussl, and Verwijmeren (2014). For example, Beggs and Graddy (2009) demonstrate that the anchoring effects are present in art auction markets.
Section 2 of this paper describes the data sample and the narcissism concept. Section 3 summarizes our main empirical findings. Section 4 provides a robustness test. Section 5 provides further discussion. Section 6 concludes the paper.