3.

The link between Perception and Individual

Decision Making
Problem
A perceived discrepancy between the current state of affairs and a desired state

Decisions
Choices made from among alternatives developed from data.

Perception Linkage
All elements of problem identification and the decision-making process are
influenced by perception.
• Problems must be recognized
• Data must be selected and evaluated
4. Decision Making in Organizations

How can we apply Decision Making in Organizations?

Biases and Errors in Decision Making?

 Constructions of decision making

The rational Bounded

Intuition
Model Rationality

• The “perfect world” • The “real world” • A non-conscious

model: assumes model: seeks process created from
complete information, satisfactory and distilled experience
all options known, and sufficient solutions that results in quick
maximum payoff. from limited data and decisions and relies on
• Six-step decision- alternatives holistic associations.
making process.
 Common biases and erros in Decision Making
Overconfidence bias
Believing too much in our own ability to make good decisions – especially when outside of own expertise

Anchoring bias
Using early, first received information as the basis for making subsequent judgments.

Confirmation bias
Selecting and using only facts that support our decision.

Avaibility bias
Emphasizing information that is most readily at hand, information that is recent and vivid.
 Common biases and erros in Decision Making
Escalation of commitment
Increasing commitment to a decision in spite of  evidence that it is wrong.

Randomness error
Creating meaning out of random events – superstitions.

Risk aversion
The tendency to prefer a sure gain of a moderate amount over a riskier outcome.

Hindsight bias
After an outcome is already known, believing it could have been accurately predicted  beforehand.
5. Influences on Decision Making
Gender Performance
Reward systems
evaluation systems
Personality
Nudging Historical
precedents.
Individual Organizatioanl
differences constraints

Formal regulations
Mental ability Cultural System-imposed
differences time constraints
 Individual differences
Personality
Conscientiousness may effect escalation of commitment
• Achievement strivers are likely to increase commitment
• Dutiful people  are less likely to have this bias
Self-Esteem
• High self-esteem people are susceptible to self-serving bias

Gender
Women analyze decisions more than men – rumination.
Making better decisions more than men in stressful situations.

Mental ability
People with higher levels of mental ability make decisions more quickly as well as make better decisions
because they are able to process information more effectively.
 Individual differences

Cultural differences
Significantly influence on the selection of the problems, and the tab of the analysis, the logical thinking

Nudging
Nudging uses psychology to circumvent our natural negative tendencies.
 Organizational constraints
Performance evaluation systems
Managerial evaluation criteria influence actions.

Reward systems
Influence decision makers by suggesting which choices have better personal payoffs.
Formal regulations
Limit the alternative choices of decision makers.

System-Imposed time constraints

Restrict ability to gather or evaluate information.

Historical precedents
Choices made today are largely a result of choices made over the years.