Perception

and Individual

Decision Making

Chapter FIVE

Learning Objectives

Explain how two people can see the same thing and

interpret it differently

List the three determinants of attribution

Describe how shortcuts can assist in or distort our

judgment of others

Explain how perception affects the decision making

process

Outline the six steps in the rational decision making model

Describe the actions of the boundedly rational decision

maker

List and explain the common decision biases or errors

Identify the conditions in which individuals are most likely

to use intuition in decision making

Contrast the three ethical decision criteria

What Is Perception, and Why Is It Important?

•People’s behavior is

based on their

perception of what

reality is, not on

reality itself.

•The world as it is

perceived is the world

that is behaviorally

important.

Perception

A process by which individuals organize and interpret their sensory impressions in order to give meaning to their environment.

Factors That

Influence

Perception

E X H I B I T 5–1

Internal vs. External

Internally - caused behaviors are those that are

believed to be under the personal control of the

individual.

Externally - caused behavior seen as resulting

from outside causes i.e., the person is seen as

having been forced into the behavior by the

situation.

Example – If one of your employee is late for

work, how will you perceive his lateness, as a

manager?

Person Perception: Making Judgments About

Others

Distinctiveness: shows different behaviors in different situations.

Consensus: response is the same as others to same situation.

Consistency: responds in the same way over time.

Attribution Theory

When individuals observe behavior, they attempt to determine whether it is internally or externally caused. Determination, however, depends on three factors:

Distinctiveness : what we want to know is whether this behavior is unusual. If it is, the observer is likely to give the behavior an external attribution. If this action is not unusual, it will be judged as internal.

Consensus : if everyone who is faced with a similar situation responds in the same way, we can say the behavior shows consensus. From an attribution point of view, if consensus is high, you would be expected to give an external attribution to the employee’s tardiness.

Consistency : the more consistent the behavior, the more the observer is inclined to attribute it to internal causes.

Attribution TheoryE X H I B I T 5–2

Errors and Biases in Attributions

Fundamental Attribution Error

One of the more interesting findings from the attribution theory is that there are errors or biases that distort attributions.

The tendency to underestimate the influence of external factors and overestimate the influence of internal factors when making judgments about the behavior of others.

In general, we

tend to blame the

person first, not

the situation.

Errors and Biases in Attributions (cont’d)

Self-Serving Bias

The tendency for individuals to attribute their own successes to internal factors while putting the blame for failures on external factors.

Thought: When student

gets an “A” on an exam,

they often say they

studied hard. But when

they don’t do well, how

does the self serving

bias come into play?

Hint: Whose fault is it

usually when an exam is

“tough”?

Frequently Used Shortcuts in Judging Others

Selective Perception

People selectively interpret what they see on the basis of their interests, background, experience, and attitudes.

Selective perception allows us to “speed-read” others, but not without the risk of drawing an inaccurate picture.

Dearborn & Simon’s perceptual study – 23 business executives,06 from sales, 05 from production, 04 from accounting & 08 from miscellaneous functions.

Frequently Used Shortcuts in Judging Others

Halo Effect

Drawing a general impression about an individual on the basis of a single characteristic-appearance,

intelligence etc.

Contrast Effects

Evaluation of a person’s characteristics that are affected by comparisons with other people recently encountered who rank higher or lower on the same characteristics

Frequently Used Shortcuts in Judging Others

Projection

Attributing one’s own characteristics to other people- can distort

perceptions made about others. It is easy to judge others if we assume that they are similar to us.

Stereotyping

Judging someone on the basis of one’s perception of the group to which that person belongs.

Specific Applications in Organizations

Employment Interview

– Perceptual biases of raters affect the accuracy of interviewers’ judgments of applicants.

Performance Expectations

– Self-fulfilling prophecy (Pygmalion effect): The lower or higher performance of employees reflects preconceived leader expectations about employee capabilities.

Ethnic Profiling

– A form of stereotyping in which a group of individuals is singled out—typically on the basis of race or ethnicity—for intensive inquiry, scrutinizing, or investigation.

Specific Applications in Organizations (cont’d)

Performance Evaluations

– An employee’s performance appraisal is very much dependent on the perceptual process.

– Appraisals are often the subjective (judgmental) perceptions of appraisers of another employee’s job performance.

– What happens when performance appraisals are subjective as compared to objective ?

– Subjective measures are easier to implement, they provide managers with greater discretion, and many jobs do not readily lend themselves to objective measures.

The Link Between Perceptions and Individual

Decision Making

Perception of the

decision maker

Outcomes

Problem

A perceived discrepancy between the current state of affairs and a desired state.

Decisions

Choices made from among alternatives developed from data perceived as relevant.

Assumptions of the Rational Decision-Making

Model

Model Assumptions

• Problem clarity

• Known options

• Clear preferences

• Constant preferences

• No time or cost constraints

• Maximum payoff

Rational Decision-

Making Model

Describes how individuals should behave in order to maximize some outcome.

Rational Decision Making Assumptions

Problem Clarity – there is no ambiguity. Complete

information about the dimensions of the problem are

available to the decision maker.

Known Options – decision maker is able to identify all the

viable alternative, also is aware of all the possible

consequences of each alternative.

Clear Preferences – rationality assumes that the criteria &

alternatives can be ranked & weighted to reflect their

importance.

Constant Preferences – specific decision criteria are

constant & the weights assigned to them are stable over

time.

No Time or Cost Constraint -

Maximum Payoff – rational decision maker will choose the

alternative with highest perceived value.

Steps in the Rational Decision-Making Model

1. Define the problem.

2. Identify the decision criteria.

3. Allocate weights to the criteria.

4. Develop the alternatives.

5. Evaluate the alternatives.

6. Select the best alternative.

E X H I B I T 5–3

The Three Components of Creativity

Creativity

Rational decision maker needs creativity - the ability to produce novel and useful ideas.

Three-Component

Model of Creativity

Proposition that individual creativity requires expertise, creative-thinking skills, and intrinsic task motivation.

E X H I B I T 5–4Source: T.M. Amabile, “Motivating Creativity in Organizations,” California Management Review, Fall 1997, p. 43.

How Are Decisions Actually Made in

Organizations?

When faced with a complex problem, most people

respond by reducing the problem to a level at

which it can be readily understood.

This is because the limited information-

processing capability of human beings make it

impossible to assimilate & understand all the

information necessary to optimize.

So, people SATISFICE, i.e., they seek solutions

that are satisfactory & sufficient.

How Are Decisions Actually Made in

Organizations?

Bounded Rationality

Individuals make decisions by constructing simplified models that extract the essential features from problems without capturing all their complexity.

Because the capacity of human mind for

formulating & solving complex

problems is far too small to meet the

requirements for full rationality,

individuals operate within the confines of

bounded rationality.

How Are Decisions Actually Made in

Organizations? (cont’d)

How/Why problems are Identified

– Visibility over importance of problem• Attention-catching, high profile problems

• Desire to “solve problems”

– Self-interest (if problem concerns decision maker)

Alternative Development

– Satisficing: seeking the first alternative that solves problem.

– Engaging in incremental rather than unique problem solving through successive limited comparison of alternatives to the current alternative in effect.

Common Biases and Errors

Overconfidence Bias

– Believing too much in our own ability to make good decisions.

Anchoring Bias

– Using early, first received information as the basis for making subsequent judgments.

Confirmation Bias

– Using only the facts that support our decision.

Common Biases and Errors

Availability Bias

– Using information that is most readily at hand.

• Recent

• Vivid

Representative Bias– “Mixing apples with oranges”

– Assessing the likelihood of an occurrence by trying to match it with a preexisting category using only the facts that support our decision.

Winner’s Curse– Highest bidder pays too much

– Likelihood of “winner’s curse” increases with the number of people in auction.

Common Biases and Errors

Escalation of Commitment

– In spite of new negative information, commitment actually increases!

Randomness Error

– Creating meaning out of random events

Hindsight Bias

– Looking back, once the outcome has occurred, and believing that you accurately predicted the outcome of an event

Intuition

Intuitive Decision Making

– An unconscious process created out of distilled experience.

Conditions Favoring Intuitive Decision Making

– A high level of uncertainty exists

– There is little precedent to draw on

– Variables are less scientifically predictable

– “Facts” are limited

– Facts don’t clearly point the way

– Analytical data are of little use

– Several plausible alternative solutions exist

– Time is limited and pressing for the right decision

Decision-Style Model – Individual Differences

E X H I B I T 5–5Source: A.J. Rowe and J.D. Boulgarides, Managerial Decision

Making, (Upper Saddle River, NJ: Prentice Hall, 1992), p. 29.

Decision-Style Model…..continued

The basic foundation of the model is the

recognition that people differ along two

dimensions.

First is their way of thinking.

Some people are logical & rational.

They process information serially.

In contrast some people are intuitive & creative.

They perceive things as a whole.

Second dimension addresses a person’s

tolerance for ambiguity.

Some people have a high need to structure

information in ways that minimize ambiguity.

Decision-Style Model…..continued

While others are able to process many thoughts

at the same time.

Directive Style – have a low tolerance for

ambiguity & seek rationality. They are efficient &

logical. They make decisions fast & they focus on

the short run.

Analytical Type – has a much greater tolerance

for ambiguity. This leads to the desire for more

information & consideration for more alternatives

than is true for directives. They are careful

decision makers with the ability to adapt to or

cope with novel & unexpected situations.

Decision-Style Model…..continued

Conceptual Style – tend to use data from multiple

sources & consider many alternatives. Their

focus is long range, and they are very good at

finding creative solutions to problems.

Behavioral Style – are decision makers who have

a strong concern for the people in the org. & their

development. They’re concerned with the well

being of their subordinates & are receptive to

suggestions from others. They tend to focus on

the short term & to downplay the use of data in

their decision making. This type of manager tries

to avoid conflict & seeks acceptance.

Organizational Constraints on Decision Makers

Performance Evaluation

– Evaluation criteria influence the choice of actions.

Reward Systems

– Decision makers make action choices that are favored by the organization.

Formal Regulations

– Organizational rules and policies limit the alternative choices of decision makers.

System-imposed Time Constraints

– Organizations require decisions by specific deadlines.

Historical Precedents

– Past decisions influence current decisions.

Cultural Differences in Decision Making

Problems selected

Time orientation

Importance of logic and rationality

Belief in the ability of people to solve problems

Preference for collective decision making

Ethics in Decision Making

Ethical Decision Criteria

– Utilitarianism

• Seeking the greatest good for the greatest number.

– Rights• Respecting and protecting basic rights of individuals

such as whistleblowers.

– Justice• Imposing and enforcing rules fairly and impartially.

Ethics in Decision Making

Ethics and National Culture

– There are no global ethical standards.

– The ethical principles of global organizations that reflect and respect local cultural norms are necessary for high standards and consistent practices.

Ways to Improve Decision Making

1. Analyze the situation and adjust your decision

making style to fit the situation.

2. Be aware of biases and try to limit their impact.

3. Combine rational analysis with intuition to

increase decision-making effectiveness.

4. Don’t assume that your specific decision style is

appropriate to every situation.

5. Enhance personal creativity by looking for novel

solutions or seeing problems in new ways, and

using analogies.

Toward Reducing Bias and Errors

Focus on goals.

– Clear goals make decision making easier and help to eliminate options inconsistent with your interests.

Look for information that disconfirms beliefs.

– Overtly considering ways we could be wrong challenges our tendencies to think we’re smarter than we actually are.

Don’t try to create meaning out of random events.

– Don’t attempt to create meaning out of coincidence.

Increase your options.

– The number and diversity of alternatives generated increases the chance of finding an outstanding one.

E X H I B I T 5–5Source: S.P. Robbins, Decide & Conquer: Making Winning Decisions and Taking Control

of Your Life (Upper Saddle River, NJ: Financial Times/Prentice Hall, 2004), pp. 164–68.

It’s your little sister’s senior Prom night, and

she notices that everyone is wearing the

same dress she has on! Which perceptual

shortcut may be occurring?

• Escalation of commitment

• Representative bias

• Availability Bias

• Hindsight Bias

Chapter Check-Up: Perception

It’s your little sister’s senior Prom night, and she notices that

everyone is wearing the same dress she has on! Which

perceptual shortcut may be occurring?

Chapter Check-Up: Perception

• Escalation of commitment

• Representative bias

• Availability Bias

• Hindsight Bias

Discuss with your neighbor what the answer would be if your

sister came home and said “I just knew that everyone would buy

that dress!”

If all of these perceptual shortcuts

happen unconsciously, how can we

keep the stereotypes we have from

interfering with the way we work in

group projects? Identify two specific

things you could do to help prevent

stereotypes from inhibiting effective

group relationships. Discuss with a

neighbor.

Chapter Check-Up: Perception

Michael has just discovered he is double registered for two

classes at the same time and must make a decision about

which one to take this semester. He considers the professor

teaching this semester, the time of the class, and the classes

his friends are taking. He then considers his options for when

he can take each class again, as well as the costs and benefits

for taking each this semester versus later next year. He then

makes his decision. Michael has just engaged in what?

Chapter Check-Up: Decision

Making

In making his decision, Michael forgot

to consider the implications of the

color of paint in the room where each

class was being offered. Given that

room color can influence mood, which

can influence performance, why didn’t

Michael consider it?

Chapter Check-Up: Decision

Making

Michael engaged in the

rational decision making model,

and didn’t consider the paint color

of the rooms because he operates

under the confines of

bounded rationality.

Chapter Check-Up: Decision

Making

Chapter Checkup: What biases

might have affected Martha

Stewart’s judgment? Discuss with a

classmate.