This occurs when the observer’s unconscious (or conscious) prejudices influence his behaviors towards the people she is observing. We all have personal beliefs, prior knowledge, and inherent subjectivity. This will affect how we act around people we observe, and change their behaviors such that they are more in alignment with our desires. This is important to understand in academia, as the goal is to create situations analogous to the real world. Influencing subjects is detrimental to that goal.
Cyril Burt’s work on I.Q. and class is a famous example of observer-expectancy bias. The psychologist worked on a study in the 1960’s to prove the heritability of the I.Q. He assumed that children from working class had a lower I.Q. and that children from higher social class had a higher I.Q. Unsurprisingly, his study “confirmed” that children from working class were less intelligent. It was later found that this finding was incorrect, and a likely reason for this mistake was his expectation of this finding changing how these children acted.