Chapter

6 Perception and
Individual Decision-making
Introduction
The world, psychologically, is not the same for different people. Individuals may
look at the same thing differently. A manager may evaluate an assistant who
takes time to decide things, as thorough and thoughtful. Another may interpret
such behaviour as slow, disorganized and afraid of taking prompt decisions.
Thus, most often, we do not see reality. We interpret what we see and call it
reality.
What is Perception?
Perception is the process by which people select, organise, interpret and
respond to information from the world around them.
Features
 Sensory experience
 Subjective
 Filter
 Unique interpretation
 Seeing things differently
 Basis of human behaviour

Cont….
The Perceptual Process
Perception is the process of interpreting and understanding one’s environment. It
is a complex psychological process, but it can be boiled down to four steps:
observation, selection, organisation and interpretation. First we observe
information (sensory data) from the environment through our senses: sight,
hearing, touch, taste and smell. Next, our mind screens the data and will select
only the items we will process further. Finally, we organise the selected data into
meaningful patterns for interpretation and response. The key elements in the
perceptual process are selection and organisation.
External Factors influencing Perception: Perception is influenced by the
characteristics of the perceived object, event or person. These include:
 Size
 Intensity
 Contrast
 Repetition
 Motion Cont….

 Novelty and Familiarity

Internal factors influencing Perception: Several characteristics of the
perceiver also can influence the selection of sensory data. Some of the more
important internal factors include:
 Personality
 Personal moods
 Experience
 Values and beliefs
 Expectations
 Learning
 Motivation

Cont….
Perceptual Organisation
Once people have selected the sensory data to be perceived, they begin
grouping the data into recognizable patterns. Perceptual organisation is the
process by which people categorize stimuli according to their frame of reference,
based on their past learning and experiences. While organising the incoming
information into a meaningful whole, people generally depend on the following
principles:
Figure Ground Principle
Figure (a) and (b) presents a classic example of figure-ground differentiation.

Ilustration of
Figure
Ground
Principle
Cont….
(a) (b)
Figure do we see a white wine glass or a white table leg against a non-white
background or do we visualise two persons facing each other against a white
background?

Is the Figure a White Vase (or goblet, or bird-bath?

Cont….
Perceptual Grouping: People or things can be grouped on the basis of similarity
or proximity. The greater the similarity in the events, the greater is the probability
that we tend to perceive them as a group. Further, objects that have close
proximity are also grouped under one head, howsoever, they are unrelated. For
instance, if in a department two people suddenly resign, then people tend to
perceive that their departures were closely related; whereas in reality it might not
be so. One might have got a foreign assignment; other might be starting his own
business.
a) Closure
b) Simplification
c) Continuity
d) Proximity
e) Similarity Cont….
Perceptual Constancy: Perceptual constancy denotes the tendency of animals
and humans to see familiar objects as having standard shape, size, colour, or
location regardless of changes in the angle of perspective, distance or lighting.
Perceptual constancy is responsible for the ability to identify objects under
various conditions, which seem to be “taken into account” during a process of
mental reconstitution of the known image.
Perceptual Context: The perception of an object or event depends in part on
the context (surrounding conditions). Context gives meaning and value to stimuli,
objects, events and situations. In an organisation, a pat on the back, an
appreciative gesture, a raised eyebrow, etc will be meaningless unless they are
viewed against a contextual background.
Perceptual Interpretation: This is the third step in perception. Once we select
and organize perceptions, we draw further conclusions about their meaning
through interpretation. The perceived world would look meaningless without
interpretation. Cont….
Perceptual Distortions
Errors in perceptual judgement are called perceptual distortions. As pointed out
earlier, we cannot assimilate all that we observe and hence, we try to speed-read
others, based on our interests, background, experience and attitudes. Such
pieces of selective perception often put us in a spot because we only see what
we want to see. Apart from selective perception, there are other reasons which
force us to draw unwarranted conclusions from foggy situations.

Barriers to Perceptual Accuracy

• Stereotyping Halo effect
• Projection Expectancy Effects
• Primacy Effect: First impressions Recency Effect
• Perceptual Defense Attribution
Attribution Theory: Why People Behave as they do?
This is a theory about how people explain things. Attribution refers to the way
people try to understand the behaviour of others (depending on what meaning
we attribute to a given behaviour). When we begin to explain why things have
happened in a certain way, we may submit, “the devil made me do it” (external
attribution. Attributing the outcome to an outside agent or force) or we may admit
“I am guilty, grant me forgiveness” (internal attribution, claiming responsibility for
the event).
According to Attribution Theory, (Kelly), three factors influence this
internal or external determination.
• Distinctiveness considers how consistent a person’s behaviour is across
different situations.
• Consensus examines how likely all those facing a similar situation are to
respond in the same way.
• Consistency considers whether an individual responds the same way
across time. Cont….
Attribution Errors
Research evidence suggests that when we made judgements about the
behaviour of other people, we tend to underestimate the influence of external
factors and overestimate the influence of internal or personal factors. This is
called the fundamental attribution error (the tendency to attribute the
behaviour of other people more to internal than to external factors) this partly
explains why a sales manager is prone to attribute the poor performance of his
salesman to laziness rather than the new product line introduced by a
competitor.
How to develop Perceptual Skills?
Though there are no set formulas to develop the perceptual abilities, some
guidelines can definitely help promote the skills of the perceiver.
• Avoid perceptual distortion
• Make accurate self-perception
• Put yourself in another person’s place
• Create a good impression about yourself
Perception and Individual Decision-making
Decision-making is an important part of management process. It covers
every part of an enterprise.
Characteristics of Decision-making
1. Goal-oriented
2. Alternatives
3. Analytical-intellectual
4. Dynamic process
5. Pervasive function
6. Continuous activity
7. Commitment of time, effort and money
8. Human and social process
Cont….
9. Integral part of planning
Types of Decisions

The quality of decision-making skills is one of the critical factors in managerial

success. Managers are evaluated by the decisions they make and, more often,
by the results obtained from their decisions. So, it would be useful to distinguish
between decisions made by managers at different levels in the organization.

 Basic and Routine Decisions

 Personal vs. Organizational Decisions

 Programmed and Unprogrammed Decisions

Cont….
The Decision-making Process
Making a good decision is a difficult exercise. It is the product of deliberation,
evaluation and thought. To make good decisions, managers should invariably
follow a sequential set of steps as shown in Figure.
Basic Steps of Decision-making

1 2 3 4 5 6

Awareness Diagnose Develop Evaluate Select the Implement

Of and State the alternative the Best and Verify
Problem the Problem Alternatives Alternative the Decision

Internal Environment

Feedback

Problem External Environment

Individual Decision-making: Three Approaches
Decision-making process is supposed to be logical, unemotional and rational.
The decision-making process discussed in the previous section implies that the
decision-maker can be fully objective and logical.
The Rational Economic Model
The term ‘rationality’ implies a consistent and value-maximizing choice within
certain limits. It means that the decision-maker as an economic being tries to
select the best alternative for achieving the optimum solution to a problem.
According to this model, the decision-maker is assumed to make decisions that
would maximize his or her advantage by searching and evaluating all possible
alternatives. The decision-making process, described in the earlier section, is
based on certain assumptions:
 Decision-making is a Goal-oriented Process
 All Choices are known
 Order of Preference Cont….
 Maximum Advantage
The above model is prescriptive and normative; it explains how decision makers
ought to behave. Rationality is an ideal and can be rarely achieved in an
organization. Many factors intervene with being perfectly rational.

1. Impossible to state the problems accurately

2. Not fully aware of problems

3. Imperfect knowledge

4. Limited time and resources

5. Cognitive limits

6. Politics

Cont….
Descriptive Decision Theory (Behavioural Theory)/The Administrative
Model

According to Simon, people have only a limited, simplified view of problems

confronting them because of certain reasons: (i) They do not have full
information about the problems. (ii) They do not possess knowledge of all the
possible alternative solution to the problems and their consequences. (iii) They
do not have abilities to process competitive environmental and technical
information. (iv) They do not have sufficient time and resources to conduct an
exhaustive search for alternative solutions to the problems.

Cont….
Differences between The Relational Economic Model and The Administrative Model

The Rational-Economic Model The Administrative Model

 Perfect rationality  Bounded rationality

 Perfect knowledge of problems,  Imperfect knowledge of problems,

consequences/outcomes consequences/outcomes

 Normative  Descriptive

 Exhaustive search for a number of alternatives  Search for a seemingly feasible alternative
rather than an exhaustive list

 Optimal decisions  Satisficing (Scottish word for satisfying) and

good enough for adequate decisions

 Concentration on technical economic terms,  Concentration on behavioural aspects; the

and quantifiable variables decision -making process receives inputs both
from quantifiable and non -quantifiable
variables

Cont….
The Political Model

The political model of decision-making is useful for making non-programmed

decisions (i) when conditions are uncertain, (ii) information is limited (iii) and
there is disagreement among managers about what goals to seek or what course
of action to pursue. Such complex decisions are resolved through forming
alliances among manager popularly known as coalition building. A manager who
supports a specific alternative such as increasing the firms growth by acquiring
another firm, talks informally to other executives and tries to persuade them to
support the decision. When the outcomes are not very clear, managers gain
support through discussion, negotiation and bargaining. According to Stevenson
et-al, coalition building gives several managers an opportunity to contribute to
decision-making, enhancing their commitment to the alternative that is finally
adopted.
Decision - making Conditions
For managers, it is always not possible to find out the consequences of an
alternative that is chosen and implemented. There are, usually, three conditions
under which decisions are made. Under conditions of complete certainty,
decision makers know exactly what the results of an implemented decision will
be. They possess complete knowledge about a decision and are able to list
outcomes for alternatives and choose the outcome that gives them maximum
return.

Cont….
Clearing the Fog
 Certainty: it is the condition under which individuals are fully informed about a problem,
alternative solutions are known and the results of each solution are known.
 Uncertainty: it is the condition under which an individual does not have the necessary
information to assign probabilities to the outcomes of alternative solutions.
 Probability: it is the percentage of times that a specific result would occur if an individual
were to make a specific decision a large number of times. For example, with enough tosses of a
coin, heads will show up fifty per cent of the time and tails the other fifty percent.
 Risk: it is the condition under which individuals can define a problem, specify the probability of
certain events, identify alternative solutions and state the probability of each solution leading
to the desired result.

Cont….
Decision-making Biases and Errors
 Overconfidence bias
 Anchoring bias
 Selective perception bias
 Confirmation bias
 Framing bias
 Availability bias
 Representation bias
 Randomness bias
 Sunk costs error
 Self-serving bias
 Hindsight bias
Cont….
Making better Decisions
When dilemmas surrounding a problem confront a manager, it is better to
answer the following: (Schermerhorn et al)
 Is the problem easy to deal with? Insignificant ones can be handled by
others and even if mistakes occur, no serious damage would be caused to
the organisation as a whole.
 Might the problem resolve itself? It’s better to have a prioritized list so that
insignificant ones are pushed to the last. The decision-maker gets lot of time
to think through the knotty ones that have the potential to impact the
business as a whole and make appropriate choices.
 Is this my decision to make? People close to the scene of action are in a
better position to put the finger on the problem causing trouble. So, it’s
better to pick up those who have seen it all and lived through such situations
on a daily basis.
 Is this a solvable problem within the context of the organisation? The astute
decision-maker has the ability to draw the curtain between problems that
realistically can be solved and those that are simply not solvable for all
practical purposes.