KEYWORDS CHAPTER 4
Perception and Individual Decision Making
KEYWORDS DEFINITION
Perception A process by which
individuals organize and
interpret their sensory
impressions in order to
give meaning to their
environment
Self-serving bias The tendency for
individuals to attribute
their own successes to
internal factors while
putting the blame for
failures on external factors
Selective The tendency to
perception selectively interpret what
one sees on the basis of
one’s interests,
background, experience,
and attitudes
Halo effect The tendency to draw a
general impression about
an individual on the basis
of a single characteristics
Contrast effects Evaluation of a person’s
characteristics that is
EXAMPLES
A group of people attend an art
exhibition. One individual might
perceive a particular painting as
vibrant and emotionally stirring,
while another may view it as chaotic
or confusing
A student performs well on a test
and receives a high grade. They may
attribute their success to their
intelligence, hard work, or effective
study strategies. However, if the
same student performs poorly on a
different test and receives a low
grade, they may attribute the failure
to external factors such as a difficult
test, unfair grading, or distractions
in the environment.
A group of people with different
political affiliations watch a
televised political debate between
two candidates. Individuals may
come away from the debate with
reinforced convictions, even if there
were valid points made by the
opposing candidate that they
overlooked or discounted.
You meet someone for the first time
who is well-dressed, confident, and
charismatic. You might develop a
positive overall impression of them
based on these qualities. As a result
of the halo effect, you may assume
that they are also intelligent,
trustworthy, and capable, even
though you have no direct evidence
of these specific qualities.
In a job interview where multiple
candidates are being evaluated, if
 affected by comparisons
with other people recently
encountered who rank
higher or lower on the
same characteristics
Overconfidence refers to a cognitive bias
bias where individuals have an
inflated or overly
optimistic belief in their
own abilities, knowledge,
or judgments
Anchoring bias A tendency to fixate on
initial information, from
which one then fails to
adequately adjust for
subsequent information
Confirmation bias The tendency to seek out
information that reaffirms
past choices and to
discount information that
contradicts past judgments
Availability bias The tendency for people to
base their judgments on
information that is readily
available to them
the first candidate performs poorly,
subsequent candidates who perform
slightly better may appear much
more impressive in comparison. The
contrast with the initial weak
candidate can make the subsequent
candidates seem more competent
and qualified than they might have
been perceived if evaluated
individually
A student consistently performs well
on quizzes and exams in a particular
subject. They believe that they have
mastered the material and don't need
to dedicate as much time or effort to
studying
A and B are negotiating the price of
a used car. The seller sets an initial
asking price that is significantly
higher than the car's market value.
This high price becomes the anchor,
and even if the buyer knows the
actual value of the car is lower, they
may struggle to make an offer
significantly below the initial asking
price.
A person holds a strong belief that a
particular diet plan is effective for
weight loss. When they come across
articles, or research studies that
support the benefits of this diet plan,
they eagerly accept and remember
this information. However, when
they encounter information about
potential drawbacks or conflicting
evidence regarding the diet plan's
effectiveness, they might be more
skeptical and inclined to discredit or
overlook it
When trying to assess the safety of a
certain neighborhood, you might
rely heavily on news stories about
crimes that have occurred in that
 area. The easily accessible
information about those specific
incidents can create an
overestimation of the
neighborhood's overall crime rate,
leading to a distorted perception.
Escalation of An increased commitment A business owner starts a new
commitment to a previous decision in venture and invests a substantial
spite of negative amount of money, time, and energy
information into it. However, as time passes,
they realize that the business is not
performing well and is consistently
incurring losses. Despite the
negative indicators and advice from
others to cut their losses and move
on, the business owner may feel
compelled to continue investing in
the failing venture due to the
substantial resources already
committed. They may think, "I've
already invested so much, I can't
give up now," and continue pouring
resources into the business, hoping
that it will eventually turn around.
Randomness error The tendency of For instance, imagine a weather
individuals t believe that forecaster predicting the chance of
they can predict the rainfall. They analyze historical
outcome of random events data, current atmospheric
conditions, and various forecasting
models to make their prediction.
However, there is always a degree
of randomness inherent in weather
patterns. A sunny day may
unexpectedly have a passing
shower, or a predicted storm may
bypass an area entirely.
Risk aversion The tendency to prefer a An individual has some savings and
sure gain of a moderate is considering investing in the stock
amount over a riskier market. They have two investment
outcome, even if the options: Option X is a low-risk
riskier outcome might investment with stable returns,
have a higher expected while Option Y is a higher-risk
payoff investment with the potential for

Hindsight bias The tendency to believe
falsely, after an outcome
of an event is actually
known, that one would
have accurately predicted
that outcome
Three-component The proposition that
model of creativity individual creativity
requires expertise, creative
thinking skills, and
intrinsic task motivation
higher returns but also the
possibility of losses. If the person
chooses Option X, it indicates risk
aversion because they prioritize the
safer and more predictable returns,
even if it means potentially missing
out on the potentially higher gains
of Option Y.
You and your friends are watching a
sports game, and you casually
mention that you think Team A will
win. As the game progresses, Team
A starts to perform exceptionally
well and eventually wins the match.
After the game, you may be inclined
to say, "I knew Team A was going
to win all along!"