Chapter 5 Perception and Individual Decision Making

Perception is a process by which individuals organize and interpret their sensory impressions in order
to give meaning to their environment. Perceptions differ depending whether we think the behaviour is
caused by the person or the situation. Attribution theory states that an internal or external attribution
depends on distinctiveness (whether an individual displays different behaviours in different situations),
consensus (whether everyone who is faced with a similar situation responds in the same way), and
consistency (whether a person responds the same way over time). Fundamental attribution error
occurs when we attribute poor performance to internal factors rather than situational constraints.
Similarly, self-serving bias is when individuals attribute successes to internal factors, such as their
intelligence or ingenuity, and failures to external factors like bad luck or uncooperative co-workers.

Individuals often use shortcuts in decision making and these shortcuts can result in significant
distortions. These shortcuts include selective perception, the halo effect, contrast effects, projection,
and stereotyping. Selective perception occurs when we only process information that is aligned with
our attitudes, interests, and backgrounds. In other words, we choose to see what we want to see. The
halo effect occurs when a single characteristic, say attractiveness, forms the basis for a general
impression about someone. For example, if someone is attractive we may associate he/she has an
array of unassociated traits: sociability, intelligence, promotability. Contrast effects occur because we
don’t evaluate a person in isolation; our reaction is influenced by other persons we have recently
encountered. For example if one has average skills and is evaluated in a group which includes
someone who is stellar, the average skill set may look poor by comparison. Stereotyping is when we
use decision making short-cuts to draw general determinations about an individual or group.

There are many applications of perception theory in the organization, including employment
interviews and performance expectations. Perception is a major influence in the interview process and
can severely impair the effectiveness of decision making. Studies have shown that interviewers tend
to make decisions very early in the interview process and different interviewers often perceive
candidates quite differently. In evaluating the performance of employees, generalizations save time,
but often prevent us from accurately perceiving the individual. In employment settings, what a
manager expects from a subordinate can alter actual performance. The phenomenon is termed a self-
fulfilling prophecy or Pygmalion effect. Finally, perception also has a major impact on the performance
evaluation process.

Individuals in organizations make decisions, making choices among two or more alternatives.
Understanding how managers make decisions can improve decision effectiveness. The first step in
making a decision is identification of the problem, a discrepancy between the current and desired
conditions.

Rational decision-making is a model derived from economics, in which individuals wish to make
decisions that maximize value. Steps in the rational decision making model include (1) identifying the
problem; (2) identifying the decision criteria; (3) weighting the previously identified criteria; (4)
generating possible alternatives; (5) rating each alternative on each criterion; (6) computing the
optimal decisions. The rational decision-making model makes a number of assumptions, including
complete information, lack of bias, and maximum payoff.

While the model of rational decision-making describes how decisions should be made, bounded
rationality describes how decisions are made. When faced with a complex problem, most people
reduce the problem to a level at which is can be understood. Because we do not have all of the
available information we “satisfice”, or arrive at an outcome that it “good enough,” one that meets an
acceptable level of performance. Because humans have limited decision making capacity, our decision
making is often biased. Common biases are overconfidence, anchoring, confirmation, availability,
representativeness, escalation of commitment, randomness, the winner’s curse, and hindsight.

Intuitive decision-making is a process that occurs unconsciously. It is the accumulation of distilled

experience that manifests as a “gut feeling.” There is a growing recognition that intuitive decision-
making can be a legitimate alternative in certain circumstances.
Decision makers often make errors. Some of the most common errors include overconfidence bias,
anchoring bias, confirmation bias, availability bias, escalation of commitment, randomness error,
winner’s curse, and hindsight bias.

Individual differences can impact the way individuals perceive and evaluate information. Personality
clearly influences decision-making, particularly with respect to conscientiousness and self-esteem.
There are also gender-related differences in decision-making – women tend to spend more time
evaluating a decision than do men.

A number of organizational factors, including performance evaluations, reward systems, formal

regulations, system-imposed time constraints, and historical precedents will influence decision-making
processes.

Three ethical criteria can be used when making decisions: utilitarianism, the rights view, and the
justice view. The goal of utilitarianism is to provide the greatest good for the greatest number of
people. This view tends to dominate business decision-making, as it is consistent with goals of
efficiency, productivity, and high profits. The rights focus emphasizes decision-making that respects
and protects the rights of individuals, including the rights to privacy, free speech, and due process. In
contrast, the justice focus relies on fairly and impartially applying rules in an attempt to equitably
distribute benefits and costs. Each of these decision criteria has advantages and costs that must be
carefully considered.

Creativity, or the ability to produce novel and useful ideas, consists of expertise, creative-thinking
skills, and intrinsic task motivation. The potentiality for creativity is enhanced when individuals work in
environments that provide flow of ideas, fair and constructive judgment of ideas, rewards for creative
work, sufficient financial, material, and information resources, freedom, to decide what work is to be
done and how to do it, a supervisor who communicates effectively, shows confidence in others, and
supports the work group, and work group members who support and trust each other.