Chapter 4

Perception and Individual Decision Making

LEARNING OBJECTIVES
After studying this chapter, your students should be able to:
1. Define perception, and explain the factors that influence it.
2. Explain attribution theory, and list the three determinants of attribution.
3. Identify the shortcuts individuals use in making judgments about others. (organization
ex.)
4. Explain the link between perception and decision making.
5. Contrast the rational model of decision making with bounded rationality and intuition.
6. Describe the common decision biases or errors.
7. Explain how individual differences and organizational constraints affect decision making.
8. Contrast the three ethical decision criteria.
9. Define creativity, and discuss the three-stage model of creativity.

Text Exercises
 Myth or Science?: "All Stereotypes Are Negative"
 glOBalization!: Does Multicultural Experience Make for Better Decisions?
 An Ethical Choice: Choosing to Lie
 Point/Counterpoint: Stereotypes Are Dying
 Questions for Review
 Experiential Exercise: Biases in Decision Making
 Ethical Dilemma: Deciding to Cheat

This chapter begins with an introduction to Nicholas D'Aloisio, a bright new star in the world of
innovation. Just 17 years old, D'Alonsio recently sold his app Summly for $30 million to
Yahoo!. Part of D'Alonsio's success can he attributed to his ability to engage invest ors to support
his innovation. While the teen is continuing his larmal education at Oxford, he has vowed to
continue to innovate. In fact, he may be Yahoo! 's only home-based employee, valued for his
creativity and perceptive decision making.
What Is Perception?
Definition: Perception is a process by which individuals organize and interpret their
sensory impressions or everything surround us in order to give meaning to their
environment. (the goal is to align perception with reality, that means we don’t want to
perceive which is not real)
Why is this important to the study of OB? Because people's behavior is based on their
perception of what reality is, not on reality itself.
Factors That Influence Perception
How do we explain the fact that individuals may look at the same thing yet perceive it
differently? Factors that shape and can distort perception:
1. Perceiver (person perceive with the preloaded assumptions)
2. Target (the direct object) (Ex: loud people are more likely to be noticed than quiet
ones) (the relationship between target and background also influence perception)
3. Situation (time involve or social settings)
- When an individual looks at a target and attempts to interpret what he or she sees, that
interpretation is heavily influenced by personal characteristics of the individual perceiver.
- Characteristics of the target also affect what we perceive.
- Context matters too.
Person Perception: Making Judgments about Others
Attribution Theory
Attribution theory suggests that when we observe an individual's behavior, we attempt to
determine whether it was internally or externally caused. That determination depends largely on
three factors:
a) Distinctiveness
b) Consensus
c) Consistency
- Clarification of the differences between internal and external causation:
a. Internally caused behaviors are those that are believed to be under the personal
control of the individual.
b. Externally caused behavior is what we imagine the situation forced the
individual to do.
- Three determining factors:
a. Distinctiveness refers to whether an individual displays different behaviors in
different situations. (Different in different situation)
b. Consensus occurs if everyone who is faced with a similar situation responds in
the same way. (Responds the same as the others)
c. Consistency in a person's actions. (Responds in the same way over time, for same
work)
Perceptual Errors/ Attribution Errors
Fundamental attribution error
There is substantial evidence that we have a tendency to underestimate the influence of external
factors and overestimate the influence of internal or personal factors. (we blame the person
instead of the situation) (but sometimes it is ok to blame the person, because after all you have
your own responsibilities, or your choice to do a thing or not do a thing)
Self-serving Bias:
There is also a tendency for individuals to attribute their own successes to internal factors, such
as ability or effort, while putting the blame for failure on external factors, such as luck.
(sometimes we give ourselves more credit than we should) (Ex: it is my success; it is their fault)
- Cultural Differences:
The evidence on cultural differences in perception is mixed, but most suggest there are
differences across cultures in the attributions people make.
Differences in attribution tendencies don't mean the basic concepts of attribution and blame
completely differ across cultures though.
Common Shortcuts in Judging Others
- The shortcuts for judging others often allow us to make accurate perceptions rapidly and
provide valid data for making predictions.
- However, they can and do sometimes result in significant distortions.
a) Selective perception
Any characteristic that makes a person, object, or event stand out will increase the
probability that it will be perceived. (Ex: election process)
Since we can't observe everything going on about us, we engage in selective perception.
b) Halo effect
The halo effect occurs when we draw a general impression on the basis of a single
characteristic. (Ex: interview: first impression is the best one)
The reality of the halo effect was confirmed in a classic study.
Subjects were given a list of traits, such as intelligent, skillful, practical, industrious,
determined, and warm, and were asked to evaluate the person to whom those traits
applied. When the word "warm" was substituted with "cold," the subjects changed their
evaluation of the person.
c) Contrast effects
We do not evaluate a person in isolation. Our reaction to one person is influenced by
other persons we have recently encountered. (evaluate other in contrast of other person)
Contrast effect can distort perception. For example, an interview situation in which one
sees a pool of job applicants can distort perception. (Ex: Checking script)
d) Stereotyping
Stereotyping—judging someone on the basis of our perception of the group to which he
or she belongs. (judging by the group’s characteristics)
 ***Generalization is not without advantages. It is a means of simplifying a complex
world, and it permits us to maintain consistency. (Ex: BNCC, African People)
One problem of stereotypes is that they are widespread generalizations, though they may
not contain a shred of truth when applied to a particular person or situation. We have to
monitor ourselves to make sure we're not unfairly applying a stereotype in our
evaluations and decisions.
Specific Applications of Shortcuts in Organizations
a) Employment interview
 Evidence indicates that interviewers make perceptual judgments that are often
inaccurate.
 Interviewers generally draw early impressions that become very quickly
entrenched.
 Studies indicate that most interviewers' decisions change very little after the first
four or five minutes of the interview. (halo effect)
b) Performance Expectations
 Evidence demonstrates that people will attempt to validate their perceptions of
reality, even when those perceptions are faulty.
 Self-fulfilling prophecy, or the Pygmalion effect, characterizes the fact that
people's expectations determine their behavior. Expectations become reality. (Ex:
Madam Fuli)
c) Performance Evaluation
 An employee's performance appraisal is very much dependent on the perceptual
process.
 Although the appraisal can be objective, many jobs are evaluated in subjective
terms.
 Subjective measures are problematic because of selective perception, contrast
effects, halo effects, and so on.
- Individuals in organizations make decisions; they make choices from among two.
- Top managers determine their organization's goals, what products or services to or more
options. offer, how best to finance operations, or where to locate a new manufacturing plant.
- Middle- and lower-level managers determine production schedules, select new employees,
and decide how pay raises are to be allocated.
- Non-managerial employees are often empowered to make decisions that have historically
been made by managers.
- Decision making occurs as a reaction to a problem. A discrepancy between the current state
of affairs and some desired state.
- Every decision requires interpretation and evaluation of information.
- The perceptions of the decision maker will address these two issues.
Decision Making in Organizations
In OB, there are generally accepted constructs of decision making that each of us employs to
make determinations: rational decision making, bounded rationality, and intuition.
There are times when one strategy may lead to a better outcome than another in a given situation.
Rational decision making
We often think the best decision maker is rational and makes consistent, value-maximizing
choices within specified constraints.
These decisions follow a six-step rational decision making listed below
Step 1: Define the problem.
Step 2: Identify the decision criteria.
Step 3: Allocate weights to the criteria.
Step 4: Develop the alternatives.
Step 5: Evaluate the alternatives.
Step 6: Select the best alternative.
The rational decision making model assumes that the decision maker has complete information,
is able to identify all the relevant options in an unbiased manner, and chooses the option with the
highest utility.
Most decisions in the real world don't follow the rational model.
Bounded Rationality
When faced with a complex problem, most people respond by reducing the problem to a level at
which it can be readily understood. (simplifying the problem)
People satisfice—they seek solutions that are satisfactory and sufficient.
Individuals operate within the confines of bounded rationality. They construct simplified models
that extract the essential features.
How does bounded rationality work?
a) Once a problem is identified, the search for criteria and options begins.
b) The decision maker will identify a limited list made up of the more conspicuous choices,
which are easy to find and tend to be highly visible, and they will represent familiar
criteria and previously tried-and-true solutions.
c) Once this limited set of options is identified, the decision maker will begin reviewing it.
To use the rational model in the real world, one need to gather a great deal of information about
all the options.
Intuition
- Perhaps the least rational way of making decisions is intuitive decision making, an
unconscious process created from distilled experience.
- It occurs outside conscious thought; it relies on holistic associations, or links between
disparate pieces of information; is fast; and is affectively charged, meaning it usually
engages the emotions.
 - While intuition isn't rational, it isn't necessarily wrong. Nor does it always contradict
rational analysis; rather, the two can complement each other.
- The key is to neither abandon nor rely solely on intuition, but to supplement it with
evidence and good judgment.
Common Biases and Errors in Decision Making
Decision makers allow systematic biases and errors to creep into their judgments.
People tend to rely on experience, impulses, gut feelings and rules of thumb. These can lead to
distortions.
a) Overconfidence Bias
- Individuals whose intellectual and interpersonal abilities are weakest are most likely to
overestimate their performance and ability. (“you don’t know that you don’t know”)
- The tendency to be too confident about their ideas might keep some from planning how
to avoid problems that arise.
- Investor overconfidence operates in a variety of ways.
 People think they know more than they do, and it costs them.
 Investors, especially novices, overestimate not just their own skill in processing
information, but also the quality of the information they're working with.
b) Anchoring Bias
- Anchoring bias involves fixating on initial information as a starting point and failing to
adequately adjust for subsequent information. (Ex: discount, ‘wow what a deal)
- Anchors are widely used by people in advertising, management, politics, real estate, and
lawyers—where persuasion skills are important. (it shifts the way one is going to think
about a second thing for the anchoring of the first thing)
- Any time a negotiation takes place, so does anchoring.
c) Confirmation Bias
- Confirmation bias is a type of selective perception: we seek out information that
reaffirms past choices, and discount information that contradicts past judgments. (Ex:
political argument)
d) Availability Bias
- Availability bias is the tendency for people to base judgments on information that is
readily available. (availability of information that is top of mind) (Ex: facebook trolls)
e) Escalation of Commitment
- Escalation of commitment occurs when we stay with a decision even when there is clear
evidence that it's wrong. (Ex: business decision)
- ****When is escalation most likely to occur? Evidence indicates it occurs when
individuals view themselves as responsible for the outcome.
f) Randomness Error
- Decision making becomes impaired when we try to create meaning out of random
events.(but which is actually not there)
- Our tendency to believe we can predict the outcome of random events is the
randomness error.
g) Risk Aversion
- The tendency to prefer a sure thing instead of a risky outcome is risk aversion.
- Risk aversion has important implications.
  Risk-averse employees will stick with the established way of doing their jobs,
rather than taking a chance on innovative methods.
 Ambitious people with power that can be taken away (most managers) appear to
be especially risk averse, perhaps because they don't want to lose on a gamble
everything they've worked so hard to achieve.
- People will more likely engage in risk-seeking behavior for negative outcomes, and
risk-averse behavior for positive outcomes, when under stress.
h) Hindsight Bias
- Hindsight bias is the tendency to believe falsely that one has accurately predicted the
outcome of an event, after that outcome is actually known. (we deceive ourselves by
thinking that we can actually predict and understand more than we can)
- ***The hindsight bias reduces our ability to learn from the past.
Ethical Decision Criteria
Ethical considerations should be an important criterion in organizational decision making. Three
Ethical Decision Criteria:
Utilitarianism
- 1st decisions are made solely on the basis of their outcomes or consequences.
- 2nd -Focus on rights—calls on individuals to make decisions consistent with fundamental
liberties and privileges as set forth in documents such as the Bill of Rights.
This criterion protects whistleblowers when they reveal an organization's unethical
practices to the press or government agencies, using their right to free speech.
- A third criterion is to impose and enforce rules fairly and impartially to ensure justice or an
equitable distribution of benefits and costs.
- Union members typically favor this view
- Each criterion has advantages and liabilities.
Limitations of Utilitarianism
a) A focus on utilitarianism promotes efficiency and productivity, but it can sideline the
rights of some individuals, particularly those with minority representation.
b) The use of rights protects individuals from injury and is consistent with freedom and
privacy, but it can create a legalistic environment that hinders productivity and efficiency.
c) A focus on justice protects the interests of the underrepresented and less powerful, but it
can encourage a sense of entitlement that reduces risk taking, innovation, and
productivity.
Increasingly, researchers are turning to behavioral ethics — an area of study that analyzes how
people actually behave when confronted with ethical dilemmas.
Their research tells us that while ethical standards exist collectively (society and
organizations) and individually (personal ethics), individuals do not always follow ethical
 standards promulgated by their organizations, and we sometimes violate our own
standards.
How might we increase ethical decision making in organizations?
a) First, sociologist James Q. Wilson promulgated the broken windows theory—the idea
that decayed and disorderly urban environments may facilitate criminal behavior because
they signal antisocial norms.
b) Second, managers should encourage conversations about moral issues; they may serve as
a reminder and increase ethical decision making.
c) Finally, we should be aware of our own moral "blind spots"—the tendency to see
ourselves as more moral than we are, and others as less moral than they are.
Behavioral ethics research stresses the importance of culture to ethical decision making.
- There are few global ethical standards, as contrasts between Asia and the West illustrate.
- What is ethical in one culture may be unethical in another.
- Without sensitivity to cultural differences in defining ethical conduct, organizations may
encourage unethical conduct without even knowing it.

Summary and Implications for Managers

- Individuals base their behavior not on the way their external environment actually is, but
rather on the way they see it or believe it to be.
- An understanding of the way people make decisions can help us explain and predict
behavior, but few important decisions are simple or unambiguous enough for the rational
model's assumptions to apply.
- We find individuals looking for solutions that satisfice rather than optimize, injecting biases
and prejudices into the decision process, and relying on intuition.
- Managers should encourage creativity in employees and teams to create a route to innovative
decision making.
- Specific implications for managers are below:
 To influence productivity, assess how your employees perceive their jobs. Clue into
employee absenteeism, turnover, and job satisfaction levels for indicators of their
perception. Discuss their perceptions about fairness, compensation, and other abstract
measures with them to clear up any perceptual distortions.
 Adjust your decision-making approach to the national culture you're operating in and to
the criteria your organization values. If you're in a country that doesn't value rationality,
 don't feel compelled to follow the rational decision-making model or to try to make your
decisions appear rational. Adjust your decision approach to ensure compatibility with the
organizational culture.
 Be aware of biases. Then try to minimize their impact. Exhibit 6-4 offers some
suggestions.
 Combine rational analysis with intuition. These are not conflicting approaches to decision
making. By using both, you can actually improve your decision-making effectiveness.
 Try to enhance your creativity. Actively look for novel solutions to problems, attempt to
see problems in new ways, use analogies, and hire creative talent. Try to remove work
and organizational barriers that might impede your creativity.