MGT 321

Perception and Individual Decision Making

Perception

• Perception is a process by which individuals organize and interpret their sensory impressions in order to give meaning to their environment.

• However, what we perceive can be substantially

different from objective reality. • Perception is important in OB because people’s

behavior is based on their perception of what reality is, not on reality itself

Differences in Perceptions

Which factors influence perception?

Attribution Theory

• Attribution theory tries to explain the ways in which we judge people differently, depending on the meaning we attribute to a given behavior

• Internally caused behaviors are those we believe to be under the personal control of the individual

• Externally caused behavior is what we imagine the situation forced the individual to do

Attribution Theory Determining factors for attribution

• Distinctiveness refers to whether an individual displays different behaviors in different situations – we want to know is whether a behavior is unusual. If it is, we are likely

to give it an external attribution. If it’s not, we will probably judge the behavior to be internal

• If everyone who faces a similar situation responds in the same way, we can say the behavior shows consensus – if consensus is high, you would probably give an external attribution

• Does the person respond the same way over time? Consistency – The more consistent the behavior, the more we are inclined to

attribute it to internal causes

Attribution Theory

Errors or biases in attribution

• When we make judgments about the behavior of other people, we tend to underestimate the influence of external factors and overestimate the influence of internal or personal factors

• Individuals and organizations also tend to attribute their

own successes to internal factors such as ability or effort, while blaming failure on external factors such as bad luck or unproductive co-workers.

• People also tend to attribute ambiguous information as relatively flattering and accept positive feedback while rejecting negative feedback. This is the self-serving bias .

Perception Shortcuts

• Selective perception: Any characteristic that makes a person, an object, or an event stand out will increase the probability we will perceive it. Because we can’t observe everything going on about us, we engage in selective perception

• Halo Effect: When we draw a general impression about an individual on the basis of a single characteristic, such as intelligence, sociability, or appearance, a halo effect is operating

Perception Shortcuts

• Stereotyping: When we judge someone on the basis of our perception of the group to which he or she belongs, we are stereotyping

• Contrast Effects: a contrast effect can distort perceptions. We don’t evaluate a person in isolation. Our reaction is influenced by other persons we have recently encountered

Use of Perception Shortcuts in Organizations

• Employment interview

• Performance expectations

• Performance evaluation

Decision Making in Organizations

• Rational decision making

– Define the problem

– Identify the decision criteria

– Allocate weights to the criteria

– Develop the alternatives

– Evaluate the alternatives

– Select the best alternative

Decision Making in Organizations

• Bounded Rationality – most people respond to a complex problem by

reducing it to a level at which they can readily understand it

– So people satisfice; they seek solutions that are satisfactory and sufficient

– We construct simplified models that extract the essential features from problems without capturing all their complexity

– What are the benefits and costs of bounded rationality? Satisficing is not always a bad idea

Decision Making in Organizations

• Intuition: intuitive decision making , an unconscious process created from distilled experience

• it’s affectively charged, meaning it usually engages the emotions

• For most of the twentieth century, experts believed decision makers’ use of intuition was irrational or ineffective. That’s no longer the case.

• We now recognize that rational analysis has been overemphasized and, in certain instances, relying on intuition can improve decision making. But we can’t rely on it too much

Biases in Decision Makings

• Overconfidence Bias: “no problem in judgment and decision making is more prevalent and more potentially catastrophic than overconfidence.”

• There’s also a negative relationship between entrepreneurs’

optimism and the performance of their new ventures: the more optimistic, the less successful. Less planning?

• Anchoring Bias: The anchoring bias is a tendency to fixate on

initial information and fail to adequately adjust for subsequent information – Anchors are widely used by people in professions in which persuasion

skills are important—advertising, management, politics, real estate, and law

Biases in Decision Makings

• Confirmation Bias - We gather information selectively. The confirmation bias represents a specific case of selective perception.

• The tendency to seek out information that reaffirms past choices and to discount information that contradicts past judgments

Biases in Decision Makings

• Availability Bias - The availability bias is our tendency to base judgments on information readily available

• Events that evoke emotions, are particularly vivid, or

are more recent tend to be more available in our memory, leading us to overestimate the chances of unlikely events such as an airplane crash

• The availability bias can also explain why managers

doing performance appraisals give more weight to recent employee behaviors than to behaviors of 6 or 9 months earlier

Biases in Decision Makings

• Escalation of Commitment - An increased commitment to a previous decision in spite of negative information

• Individuals escalate commitment to a failing

course of action when they view themselves as responsible for the failure.

• They “throw good money after bad” to

demonstrate their initial decision wasn’t wrong and to avoid admitting they made a mistake

Biases in Decision Making

• Randomness Error - Our tendency to believe we can predict the outcome of random events

• Decision making suffers when we try to create meaning in random events, particularly when we turn imaginary patterns into superstitions

• Risk Aversion - This tendency to prefer a sure thing over a risky outcome is risk aversion.

• Risk-averse employees will stick with the established way of doing their jobs, rather than taking a chance on innovative or creative methods

Biases in Decision Makings

• Hindsight Bias - The hindsight bias is the tendency to believe falsely, after the outcome is known, that we’d have accurately predicted it

• The hindsight bias reduces our ability to learn from the past. It lets us think we’re better predictors than we are and can make us falsely confident.

• How do these biases apply to financial decision making? Financial Crisis of 2008?

How do individual differences influence decision making?

• Personality: Personalities affect decision making

– Specific facets of conscientiousness—rather than the broad trait itself—may affect escalation of commitment

– Generally, achievement-oriented people hate to fail, so they escalate their commitment. Dutiful people are more inclined to do what they see as best for the organization

How do individual differences influence decision making?

• Gender: Twenty years of study find women spend much more time than men analyzing the past, present, and future. They’re more likely to overanalyze problems before making a decision and to rehash a decision once made

• This can lead to more careful consideration of problems and choices. However, it can make problems harder to solve, increase regret over past decisions, and increase depression. Women are nearly twice as likely as men to develop depression

How do individual differences influence decision making?

• Mental Ability - We know people with higher levels of mental ability are able to process information more quickly, solve problems more accurately, and learn faster, so you might expect them also to be less susceptible to common decision errors

• Smart people are just as likely to fall prey to anchoring, overconfidence, and escalation of commitment. But, once warned about decision-making errors, more intelligent people learn more quickly to avoid them

How do individual differences influence decision making?

• Cultural Differences - The rational model makes no acknowledgment of cultural differences, nor does the bulk of OB research literature on decision making

• Cultures differ in their time orientation, the importance of rationality, their belief in the ability of people to solve problems, and their preference for collective decision making.

Organizational Constraints on Decision Making

• Managers shape their decisions to reflect the organization’s performance evaluation and reward system, to comply with its formal regulations, and to meet organizationally imposed time constraints. Precedent can also limit decisions.

– Performance Evaluation

– Reward Systems

– Formal Regulations

– System-Imposed Time Constraints

– Historical Precedents

Ethical Criteria in Organizational Decision Making

• Utilitarianism - Proposes making decisions solely on the basis of their outcomes, ideally to provide the greatest good for the greatest number. This view dominates business decision making. It is consistent with goals such as efficiency, productivity, and high profits

• To make decisions consistent with fundamental liberties and

privileges – Constitution, Bill of rights • To impose and enforce rules fairly and impartially to ensure

justice or an equitable distribution of benefits and costs

• Cultural differences in ethical standards – no global standard

Ethical Criteria in Organizational Decision Making

• The “best interests” of the organization and its stockholders can justify a lot of questionable actions, such as large layoffs

• Public concern about individual rights and social justice suggests managers should develop ethical standards based on non-utilitarian criteria

• This presents a challenge because satisfying individual rights and social justice creates far more ambiguities than utilitarian effects on efficiency and profits

Creativity in Decision Makings

• Creativity is the ability to produce novel and useful ideas

– Traits of creative people are openness to experience, independence, self-confidence, risk taking, an internal locus of control, tolerance for ambiguity, a low need for structure, and perseverance

Three Stage Model of Creativity in Organizations

Creative Outcomes (Innovation)

Novelty Usefulness

Creative Behavior

Problem Formulation

Idea Evaluation

Causes of Creative Behavior

Creative Potential Creative Environment

Information Gathering

Idea Generation