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Human Behavior in Organization (HBO)
MODULE No. 5
About Perception and Individual
Decision Making
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 one perceives can be
substantially different from objective reality
Why is perception important in the study of
Organizational Behavior? Simply because
people behavior is based on their perception of
what is reality is, not on reality itself. The world
as it is perceived is the world that is behaviorally
important.
Factors Influencing Perception
How do we explain that individuals may look at
the same thing, yet perceive it differently? A
number of factors operate to shape and
sometimes distort perception. These factors can
reside in the perceiver, in the object or target
being perceived, or in the context of the
situation in which the perception is made.
Frequently Used Shortcuts in
Judging Others
We use a number of shortcuts when we judge
others. Perceiving and interpreting what others
do is burdensome. As a result, individuals
develop techniques for making the task more
manageable. An understanding of these
shortcuts can be helpful in recognizing when
they can result in significant distortion.
Selective Perception. Selectively interpreting
what one sees on the basis of one’s interests,
background, experience and attitudes.
Halo Effect. Drawing a general impression
about an individual on the basis of a single
characteristics.
Contrast Effects. Evaluation of persons’
characteristics that are affected by comparisons
with other people recently encountered who rank
higher or lower on the same characteristics.
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.
The Link Between Perception and
Individual Decision Making
Individuals in organizations make decisions.
That is, they make choices from among two or
more alternatives. Top managers determine
their organization’s goals, what products or
services to 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.
Nonmanagerial employees also make decisions
that affect their jobs and the organizations for
which they work.
Alternatives will be developed, and the strengths
and weaknesses of each will need to be
evaluated. The individual decision maker’s
perceptual process will have a large bearing on
the final outcome. Finally, throughout the entire
decision process, perceptual distortions often
surface that have the potential to the analysis
and conclusions.
How Should Decisions Be Made?
Let’s begin by describing, at least in theory, how
individuals should behave in order to maximize
or optimize a certain outcome.
The Rational Decision-Making Process. A
decision-making model that describes how
individuals should behave in order to maximize
some outcome.
Steps in the Rational Decision-Making
Process:
1. Define the problem. A problem exists
when there is a discrepancy between an
existing and a desired state of affairs.
2. Identify the decision criteria. The
decision maker determines what is
relevant in making the decision.
3. Allocate weights to the criteria. The
criteria defined are rarely all equal in
importance. The decision maker is
required to weight the previously
identified criteria in order to give them
the correct priority in the decision.
4. Develop the alternatives. No attempts
is made in this step to appraise these
alternatives, only to list them.
5. Evaluate the alternatives. Once the
alternatives have been generated, the
decision-maker must critically analyze
and evaluate each one
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6. Select the best alternatives. This is
done by evaluating each alternative
against the weighted criteria and
selecting the alternative with the higher
total score.
Assumptions of the Model. The rational
decision-making model we just described
contains a number of assumptions.
 Problem clarity. The problem is clear
and unambiguous. The decision maker
is assumed to have complete
information regarding the decision
situations.
 Known options. It is assumed the
decision maker can identify all the
relevant criteria and can list all the
viable alternatives. Furthermore, the
decision maker is aware of all the
possible consequences of each
alternative.
 Clear preferences. Rationality
assumes that the criteria and
alternatives can be ranked and weighted
to reflect their importance.
 Constant preferences. It’s assumed
that the specific decision criteria are
constant and that the weights assigned
to them are stable over time.
 No time or cost constraints. The
rational decision maker can obtain full
information about criteria and
alternatives because it’s assumed that
there are no time or cost constraints.
 Maximum payoff. The rational decision
maker will choose the alternative that
yields the highest perceived value.
Improving Creativity in Decision Making.
Why is creativity important to decision making?
It allows the decision maker to more fully
appraise and understand the problem, including
seeing problems others can’t see. However,
creativity’s most obvious value is in helping the
decision maker identify all viable alternatives, or
to identify alternatives that aren’t readily
apparent.
Creative potential. Most people have creative
potential that they can use when confronted with
a decision-making problem. But to unleash that
potential, they have to get out of the
psychological ruts many of us get into and learn
how to think about a problem in divergent ways.
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Three-Component Model of Creativity.
Expertise is the foundation for all creative work.
For example, you wouldn’t expect someone with
a minimal knowledge of programming to be very
creative as a software engineer.
The second component is creative-thinking
skills. This encompasses personality
characteristics associate with creativity, the
ability to use analogies, as well as the talent to
see the familiar in a different light.
Some people have developed their creative
skills because they are able to see problems in a
new way. They’re able to make the strange
familiar and the familiar strange. For instance,
most of us think of hens laying eggs. But how
many of us have considered that a hen is only
an egg’s way of making another egg.
The final component in the three-component
model of creativity is intrinsic task motivation.
This is the desire to work on something because
it’s interesting, involving, exciting, satisfying, or
personally challenging.
How Are Decisions Actually Made in
Organizations?
Are decision makers in organizations rational?
Do they carefully assess problems, identify all
relevant criteria, use their creativity to identify all
viable alternatives, and painstakingly evaluate
every alternative to find an optimal choice?
Bounded Rationality. Making decisions by
constructing simplified models that extract the
essential features from problems without
capturing all their complexity.
When you considered which college to attend,
did you look at every viable alternative? Did you
carefully identify all the criteria that were
important in your decision? Did you evaluate
each alternative against the criteria in order to
find the optimal college?
Common Biases and Errors
Overconfidence Bias. It’s been said that “no
problem in judgment and decision making is
more prevalent and more potentially
catastrophic than overconfidence.” For
instance, studies have found that, when people
say they’re 65 to 70 percent confident that
they’re right, they were actually correct only
about 50 percent of the time. And when they
say they’re 100 percent sure, they tended to be
70 to 85 percent correct.
Anchoring Bias. A tendency to fixate on initial
information, from which we then fail to
adequately adjust for subsequent information.
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The anchoring bias occurs because our mind
appears to give a disproportionate amount of
emphasis to the first information it receives. So
initial impression, ideas, prices, and estimates
carry undue weight relative to information
received later.
Confirmation Bias. The tendency to seek out
information that reaffirms past choices and to
discount information that contradicts past
judgments.
The rational decision-making process assumes
that we objectively gather information. But we
don’t. We selectively gather information. The
confirmation bias represents a specific case of
selective perception. We seek out information
that reaffirms our past choices, and we discount
information that contradicts past judgments.
Availability Bias. The tendency for people to
base their judgments on information that is
readily available for them.
Many more people suffer from fear of flying than
fear of driving in a car. The reason is that many
people think flying is more dangerous . It isn’t,
of course.
Events that evoke emotions, that are particularly
vivid, or that have occurred more recently tend
to be more available in our memory. As a result,
we tend to be prone to overestimating unlikely
events like an airplane crash.
Representative Bias. Assessing the likelihood
of an occurrence by inappropriately considering
the current situation as identical to ones in the
past.
Managers, for example, frequently predict the
performance of a new product by relating it to a
previous product’s success. Or if three
graduates from the same college were hired and
turned out to be poor performers, managers may
predict that a current job applicant from the
same college will not be a good employee.
Escalation of Commitment. An increased
commitment to a previous decision in spite of
negative information.
Escalation of commitment refers to staying with
a decision even when there is a clear evidence
that it’s wrong.
Randomness Error. The tendency of individual
to believe that they can predict the outcome of
random events.
Human beings have a lot of difficulty dealing
with chance. Most of us like to believe we have
some control over our world and our destiny.
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Winner’s Curse. A decision-making dictum that
argues that the winning participants in an
auction typically pay too much for the winning
item.
Imagine, for example, that all members of your
class are bidding on a painting. Obviously, there
will be variation in bids, and the person who
places the highest bid will receive the painting.
Unless people grossly underestimate the value
of an item and others will overestimate it, and
the highest bidder (the winner) will be the one
who overestimated the most.
Hindsight Bias. The tendency for us to believe
falsely that we’d have accurately predicted the
outcome of an event, after that outcome is
actually known.
When something happens and we have
accurate feedback on the outcome, we seem to
be pretty good at concluding that this outcome
was relatively obvious.
Intuition
Intuitive decision making. An unconscious
process created out of distilled experience. It
doesn’t necessarily operate independently of
rational analysis; rather, the two complement
each other. And, importantly, intuition can be a
powerful force in decision making.
Individual Differences
Personality. The studies that have been
conducted suggest that personality does
influence decision making.
Gender. Recent research on rumination offers
insights into gender differences in decision
making. Overall, the evidence indicates that
women analyze decisions more than men do.
Organizational Constraints
Performance Evaluation. Managers are
strongly influenced in their decision making by
the criteria on which they are evaluated. If a
division manager believes that the
manufacturing plants under his responsibility are
operating best when he bears nothing negative,
we shouldn’t be surprised to find his information
doesn’t reach the division boss.
Reward System. The organization reward
system influences decision makers by
suggesting to them what choices are preferable
in terms of personal payoff.
Formal Regulations. By programming
decisions, organizations are able to get
individuals to achieve high levels of performance
without paying for the years of experience that
would be necessary in the absence of
regulations.
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System-Imposed Time Constraints. Ethics and National Culture

Organizations impose deadlines on decisions.
For instance, department budgets need to be
completed by next Friday. Or the report on new-
product development has to be ready for the
executive committee to review by the first of the
month.
Historical Precedents. Decisions aren’t made
in a vacuum. They have a context. In fact,
individual decisions are more accurately
characterized as points in a stream of decisions.
What is seen as an ethical decision in China
may not be seen as such in Canada. The
reason is that there are no global ethical
standards. Contrasts between Asia and the
West provide an illustration. Because bribery is
commonplace in countries such as China, a
Canadian working in China might face the
dilemma: Should I pay a bribe to secure a
business if it is an accepted part of that country’s
culture?

Cultural Differences
Question for Critical Thinking
Cultures, for example, differ in terms of
orientation, the importance of rationality, their
What factors do you think differentiate good
belief in the ability of people to solve problems,
and their preference for collective decision decision makers from poor ones? Relate
making. your answer to the six-step rational model.

Some cultures emphasize solving problems,

while others focus on accepting situations as
they are.

Decision making by Japanese managers is

much more group-oriented than in the United
States. The Japanese value conformity and
cooperation. So before Japanese CEOs make
an important decision, they collect a large
amount of information, which is used in
consensus –forming group decisions.

What About Ethics in Decision Making?

No contemporary discussion of decision making

would be complete without the inclusion of
ethics because ethical considerations should be
an important criterion in organizational decision
making.

Three Ethical Decision Criterion

An individual can use three different criteria in

making ethical choices. The first is the
utilitarian criterion. The goal of utilitarianism is
to provide the greatest good for the greatest
number. This view tends to dominate business
decision-making. It is consistent with goals like
efficiency, productivity and high profits.

Another ethical criterion is to focus on rights.

This calls on individuals to make decisions
consistent with fundamental liberties and
privileges as set forth in documents like the Bill
of Rights.

A third criterion is to focus on justice. This

requires individuals to impose and enforce rules
fairly and impartially so that there is an equitable
distribution of benefits and costs.