PERCEPTION AND INDIVIDUAL

DECISION MAKING

OB LECTURE 5
 LESSON AGENDA

• Perception & Individual Decision Making

• Attribution Theory & Decisions In Organizations
• Biases & Ethical Considerations In Decision Making

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 WHAT IS 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.
• People’s behaviour is based on their perception of what reality is, not on reality
itself.The world as it is perceived is the world that is behaviourally important.

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FACTORS THAT
INFLUENCE
PERCEPTION

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 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.
• It suggests that when we observe an individual’s behavior, we attempt to
determine whether it was internally or externally caused. That determination,
however, depends largely on three factors:
• 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.

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 ATTRIBUTION THEORY

• Distinctiveness refers to whether an individual displays different behaviors in

different situations.
• If everyone who faces a similar situation responds in the same way, we can say
the behavior shows consensus.
• Finally, an observer looks for consistency in a person’s actions. Consistency is
to look if the person responds same way over time.

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 EXAMPLE CASE STUDY FOR
ATTRIBUTION THEORY
• Nancy, a manager, has assigned a team of employees to develop a custom sales training program for a client.
As the project progresses, Nancy continues to see problems in the work produced by Jim, one of the team
members. In order to determine why Jim's performance is not satisfactory, Nancy first considers
consistency, or whether Jim has performed poorly on other similar team projects.
• A review of his past performance appraisals indicates that he has not had prior performance problems when
creating custom sales training programs. This would lead Nancy to conclude that there was an external
cause of the poor performance. Second, Nancy considers distinctiveness; she wants to know if Jim has
performed poorly on different types of tasks. Again, in checking Jim's performance reviews, she finds that
when he is on a team to accomplish a different type of task, such as developing a selection interview, he has
excelled.This further points to an external cause of Jim's poor performance.
• Finally, Nancy assesses consensus, or the behavior of others in this similar task. In asking the team members
about their experiences with the current project, she finds that many of them have had difficulty in
developing this custom sales training program. Thus, all indicators point to Jim's poor performance being
caused by an external factor, such as a difficult task or a demanding client. Based on this attribution,
Nancy may explore ways in which to minimize the negative effects of the external factors on Jim's
performance rather than attempting to influence his level of effort or ability.

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 ERRORS AND BIASES IN ATTRIBUTIONS

• Fundamental Attribution Error

The tendency to underestimate the influence of
external factors and overestimate the influence of
internal factors when making judgments about the
behavior of others.
E.g., sales manager is prone to attribute the poor
performance of her sales agents to laziness rather
than to the innovative product line introduced by a
competitor.
• Self-Serving Bias
The tendency for individuals to attribute their own
successes to internal factors while putting the
blame for failures on external factors.
E.g., Organizations take credit for success and
blame employees for any failure.
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 FREQUENTLY USED SHORTCUTS IN
JUDGING OTHERS

• Selective Perception
People selectively interpret what they see on the
basis of their interests, background, experience,
and attitudes. This explains why you’re more likely
to notice cars like your own.
• Halo Effect
Drawing a general impression about an individual
on the basis of a single characteristic. E.g., People
to assign positive qualities and traits to physically
attractive people and vice versa.

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 FREQUENTLY USED SHORTCUTS IN
JUDGING OTHERS (CONT’D)

• 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. Our perception is altered once we start
to compare things to one another.
• Projection
Attributing one’s own characteristics to other people.
• Stereotyping
Judging someone on the basis of one’s perception of
the group to which that person belongs.
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 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.

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 SPECIFIC APPLICATIONS IN
ORGANIZATIONS (CONT’D)

• Performance Evaluations
Appraisals are often the subjective (judgmental) perceptions of appraisers of
another employee’s job performance.
• Employee Effort
Assessment of individual effort is a subjective judgment subject to perceptual
distortion and bias.

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THE LINK BETWEEN PERCEPTIONS AND
INDIVIDUAL DECISION MAKING

Problem
A perceived discrepancy Perception of
between the current state of the decision
affairs and a desired state. maker

Decisions
Choices made from among
alternatives developed from
data perceived as relevant.
Outcomes
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 ASSUMPTIONS OF THE RATIONAL
DECISION-MAKING MODEL

• Rational Decision- Making Model

A decision-making model that describes Model Assumptions
how individuals should behave in order • Problem clarity
to maximize some outcome. • Known options
Most decisions in the real world don’t • Clear preferences
follow the rational model.
• Constant preferences
Most significant decisions are made by • No time or cost constraints
judgment, rather than by a defined
• Maximum payoff
prescriptive model.

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 HOW ARE DECISIONS ACTUALLY MADE
IN ORGANIZATIONS?

Bounded Rationality
• Because the human mind cannot formulate and solve complex problems with
full rationality, we operate within the confines of bounded rationality.
• People seek solutions that are satisfactory and sufficient, rather than optimal
(they “satisfice”)
• Bounded rationality is constructing simplified models that extract the essential
features from problems without capturing all their complexity

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 HOW ARE DECISIONS ACTUALLY MADE
IN ORGANIZATIONS? (CONT’D)

Simpler than rational decision making, composed of three steps:

1. Limited search for criteria and alternatives – familiar criteria and easily found
alternatives
2. Limited review of alternatives – focus alternatives, similar to those already in
effect
3. Satisficing – selecting the first alternative that is “good enough”

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 INTUITIVE DECISION MAKING

Intuitive Decision Making

• A non-conscious process created out of distilled experience. Occurs
outside conscious thought and usually based on emotions.
• Increases with experience
• Can be a powerful complement to rational analysis in decision making. The
key is neither to abandon nor rely solely on intuition, but to supplement it
with evidence and good judgment.

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 Overconfidence Bias

• It is the tendency to believe too much in our own decision competencies.

Anchoring Bias

• A tendency to fixate on initial information, from which one then fails to adequately
adjust for subsequent information.

Confirmation Bias
COMMON • The tendency to seek out information that reaffirms past choices and to discount
BIASES AND information that contradicts past judgments.
ERRORS
Availability Bias

• The tendency for people to base their judgments on information that is readily
available to them.

Risk Aversion

• Tendency to prefer a sure gain of a moderate amount over a riskier outcome, even if
the riskier outcome might have a higher expected payoff.

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 Escalation of Commitment

• Increasing commitment to a previous decision in spite

of negative information.

Randomness Error
COMMON
BIASES AND • The tendency of individuals to believe that they can
predict the outcome of random events.
ERRORS
Hindsight Bias

• Falsely believing to have accurately predicted the

outcome of an event, after that outcome is actually
known. E.g.“I knew it all along”.

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 HOW TO REDUCE BIASES AND ERRORS?

• Focus on Goals
Without goals, you can’t be rational, you don’t know what information you need,
you don’t know which information is relevant and which is irrelevant, you’ll find it
difficult to choose between alternatives, and you’re far more likely to experience
regret over the choices you make. Clear goals make decision making easier and
help you eliminate options that are inconsistent with your interests.
• Look for Information
One of the most effective means for counteracting overconfidence and the
confirmation and hindsight biases is to actively look for information that
contradicts your beliefs and assumptions. When we overtly consider various
ways, we could be wrong, we challenge our tendencies to think we’re smarter
than we actually are.

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 HOW TO REDUCE BIASES AND ERRORS?

• Don’t Try to Create Meaning out of Random Events.

The educated mind has been trained to look for cause-and-effect relationships.
When something happens, we ask why. And when we can’t find reasons, we often
invent them. You have to accept that there are events in life that are outside your
control. Ask yourself if patterns can be meaningfully explained or whether they
are merely coincidence. Don’t attempt to create meaning out of coincidence.
• IncreaseYour Options.
No matter how many options you’ve identified, your final choice can be no better
than the best of the option set you’ve selected. This argues for increasing your
decision alternatives and for using creativity in developing a wide range of diverse
choices. The more alternatives you can generate, and the more diverse those
alternatives, the greater your chance of finding an outstanding one.

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 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.
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 ETHICS IN DECISION MAKING

• Ethical Decision Criteria should be used in organizations for decision-making.

• 3 important criteria for ethics:
• Utilitarianism: A system which proposes making decisions solely on the
basis of their outcomes, ideally to provide the greatest good for the greatest
number.
• Rights: An emphasis on rights in decision making means respecting and
protecting the basic rights of individuals, such as the right to privacy, free
speech, and due process. E.g., for whistle blowers
• Justice: Impose and enforce rules fairly and impartially to ensure justice or
an equitable distribution of benefits and costs.

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 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.

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 IMPROVING CREATIVITY IN DECISION
MAKING

• Creativity is the ability to produce novel and useful ideas.

• Creativity allows the decision maker to more fully appraise and
understand the problem, including seeing problems others can’t see.
• Creative Potential Most people have useful creative potential. But to
unleash it, they have to escape the psychological ruts many of us fall
into and learn how to think about a problem in divergent ways.

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 3 COMPONENTS OF CREATIVITY

What can individuals and organizations do to stimulate employee creativity?

• The best answer lies in the three-component model of creativity which
proposes that individual creativity essentially requires expertise, creative
thinking skills, and intrinsic task motivation. Studies confirm that the higher the
level of each, the higher the creativity.The 3 components are:
• Expertise: The potential for creativity is enhanced when individuals have
abilities, knowledge, proficiencies, and similar expertise in their field of
endeavour.
• Creative-thinking skills: This encompasses personality characteristics
associated with creativity, the ability to use analogies, and the talent to see the
familiar in a different light.
• Intrinsic task motivation: This is the desire to work on something because
it’s interesting, involving, exciting, satisfying, or personally challenging
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 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.

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QUESTIONS?

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