PERCEPTION AND

INDIVIDUAL
DECISION MAKING
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• PERCEPTION : A process by which individuals
organise and interpret their sensory impressions
in order to give meaning to their environment.
• What we perceive can be substantially different
from objective reality.
• Why is it important in O.B.?
• Because 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
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• Factors that influence perception
• 1.Factors in the Perceiver.
• Attitudes, Motives, Interests, Experience, Expecta
tions.
• 2. Factors in the situation.
• Time, Work setting, Social setting
• 3. Factors in the target.
• Novelty, Motion, Sounds, Size, Backgrounds, Proxi
mity, Similarity.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• Factors that influence perception
• 1.Factors in the Perceiver.
• Eg. If you expect Police officers to be authoritative, young people
to be lazy, or politicians to be unscrupulous, you may perceive
them as such, regardless of what they may actually be.
• 2. Factors in the situation.
• Eg. At a nightclub on Saturday night, you might not notice a young
man “dressed to the nines”. Yet that same person dressed in the
same manner in the afternoon O.B. class would warrant a lot of
attention.
• 3. Factors in the target.
• Eg. We have a tendency to group close or similar things together.
We often perceive women, men, whites, african
americans, asians, or members of any other group as alike in
other, unrelated ways as well.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• PERSON PERCEPTION – MAKING JUDGEMENTS ABOUT OTHERS.
• People have beliefs, motives or intentions.
• When we observe people, we attempt to explain why they behave
in certain ways.
• ATTRIBUTION THEORY : An attempt to determine whether an
individual’s behaviour is internally or externally caused.
• Internally caused behaviours are those we believe to be under the
personal control of the individual. Externally caused behaviour is
what we imagine the situation forced the individual to do.
• Eg.An employee arrives late. You attribute that to partying late
into the night and then waking up late – Internal attribution
You attribute it to a traffic jam on the way to work – external
attribution.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• Depends on 3 factors:
• 1.Distinctiveness refers to whether an individual displays different behaviours in
different situations.
• Different levels of performance on different related tasks – High distinctiveness –
External attribution
• Same levels of performance on different related tasks - Low distinctiveness –
Internal attribution
2. Consensus – If everyone who faces a similar situation responds in the same
way, we can say the behaviour shows consensus.
• If consensus is high, then we give an External attribution to the act which was
not congruent with the consensus. Eg. If everyone who took a new route to work
was late on a particular day, consensus is high; therefore we give an external
attribution to the act., whereas if only 1 person was late, then we would look to
give an internal attribution.
• 3. Consistency – The more consistent the behaviour, the more we are inclined to
attribute it to internal causes.
• Eg: Coming to work late once in a while - External attribution
• Coming to work late 3 times a week - Internal attribution
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• Comprehensive ex.:Mithilesh Jha generally
performs at about the same level on several
related tasks(low distinctiveness),
• Other employees frequently perform differently –
better or worse-than Jha ji does on his current
task(low consensus),
• and Jha ji’s performance on this current task is
consistent over time(high consistency),
• then anyone judging Jha ji’s work will likely hold
him primarily responsible for his
performance(INTERNAL ATTRIBUTION).
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• Fundamental attribution error: The tendency
to underestimate the influence of external
factors and overestimate the influence of
internal factors when making judgements
about the behaviour of others.
• Eg. A 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.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• Self serving Bias : The tendency for individuals to
attribute their own successes to internal factors
and put the blame for failures on external factors.
• Eg.: Researchers asked one group of people – “If
someone sues you and you win the case,
should he pay your legal costs?” 85%
responded Yes.
Another group was asked : “If you sue someone
and lose the case, should you pay his costs?”

• Only 44% answered Yes.

 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• COMMON SHORTCUTS IN JUDGING OTHERS
• 1. Selective perception
• 2. Halo Effect
• 3. Contrast Effect
• 4. Stereotyping
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• Eg.3 From 2007 to 2009, the U.S. stock
market lost roughly half its value.
• Yet during that time, sell ratings(analysts give one
of 3 recommendations:Buy, Sell, Hold) from
analysts actually DECREASED slightly.
• Each time the market went down was seen as a
new opportunity to buy the stock even cheaper.
By looking only at the past price, analysts were
relying on a false reference point and failing to
recognise that what has fallen can fall further
still.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• 1. SELECTIVE PERCEPTION :
• The tendency to selectively interpret what one sees on the basis of
one’s interests, background, experience and attitudes.
• Eg.1 You are more likely to notice cars like your own.
• Eg.2 23 business executives (6 in sales, 5 in production, 4 in
accounting, 8 in miscellaneous functions) to read a comprehensive
case describing the organisation and activities of a steel company.
• Each manager was asked to write down the most important
problem in the case.
• 83% of the sales executives rated sales important.
• Only 29% of the others did so.
• Conclusion : Participants perceived as important the aspects of a
situation specifically related to their own unit’s activities and
goals.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• 2. HALO EFFECT: The tendency to draw a general
impression about an individual on the basis of a
single characteristic.
• Eg.: If you are a critic of Manmohan Singh, try
listing 10 things you like about him.
• If you are an admirer of Manmohan Singh, try
listing 10 things you do not like about him.
• Not easy!
• That is because OUR GENERAL VIEWS
CONTAMINATE OUR SPECIFIC ONES.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• 3.CONTRAST EFFECT: Evaluation of a person’s
characteristics that is affected by comparisons
with other people recently encountered who rank
higher or lower on the same characteristics.
• Eg.In a series of Job Interviews, a candidate is
likely to receive a more favourable evaluation if
preceded by mediocre applicants and a less
favourable evaluation if preceded by strong
applicants.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• 4. STEREOTYPING: Judging someone on the basis of
one’s perception of the group to which that person
belongs – gender, race, religion, ethnicity, weight.
• Eg: Women won’t relocate for a promotion.
Men aren’t interested in childcare. Older
workers can’t learn new skills. Overweight
people lack discipline.
MANAGERS and ADMINISTRATORS must make sure they
are not unfairly or inaccurately applying a stereotype in
their evaluations and decisions.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• SPECIFIC APPLICATIONS OF SHORT CUTS IN
ORGANISATIONS:
• 1. Employment interview:
• Early impressions become entrenched.
• First impressions can be formed in 1/10 of a
second. First impressions get much more
weightage than impressions formed later.
• Very little change in interviewer’s decisions
after the first 4 -5 minutes of an interview.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• 2. Performance expectations:
• Self fulfilling prophecy : A situation in which
an individual behaves in ways consistent with
the inaccurate perceptions about him by a
second individual.
• Eg: Students, soldiers, employees.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• 3. Performance evaluation :
• Appraisals can be objective ( eg.sales ).
• Subjective appraisals can be problematic
because all the perceptual errors creep in –
selective perception, contrast effects, halo
effects, and so on.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• The link between Perception and Individual decision
making:
• Decision making occurs as a reaction to a problem.
• But, one person’s problem is another person’s
satisfactory state of affairs.
• So, awareness that a problem exists and that a decision
might or might not be needed is a perceptual issue.
• Every decision requires interpreting and evaluation
information.
• Which data are important, which are not – again a matter
of perception.
• Perceptual distortions can bias analysis and conclusions
throughout the decision making process.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• Decision making in oganisations:
• 1.Rational model
• 2. Bounded rationality
• 3. Intuition
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• Rational : Characterised by making consistent, value maximising choices
within specified constraints.
• 1.RATIONAL MODEL
• Steps:
• 1.Define the Problem.
• 2.Identify the decision criteria – i.e all the relevant information –
difficult.
• 3. Allocate weights to the criteria – Again, difficult.
• 4. Develop the alternatives.
• 5. Evaluate the alternatives.
• 6. Select the best alternative

• Most decisions in the real world don’t follow the rational model.
• People are content with an acceptable or reasonable solution rather than
an optimal one.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• 2. BOUNDED RATIONALITY : A process of making
decisions by constructing simplified models that
extract the essential features from problems without
capturing all their complexity.
• The information processing capacity of humans is
limited.
• So most people reduce complex problems to a level at
which they can readily understand it.
• People SATISFICE, I.E. they seek solutions that are
satisfactory and sufficient.
• Eg. How did you choose K.M.C. manipal for your
M.H.A. program?
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• SATISFICING :
• Once a problem is identified, we identify a limited
list of the most visible and relevant choices.
• Next, we review only those alternatives that
differ very little from the ideal that we have in
mind.
• We stop when we get an alternative that is
“GOOD ENOUGH”. Our search ends at the first
acceptable one – rather than an optimal one.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• 3. INTUITION: An unconscious process created out of
distilled experience.
• Perhaps the least rational way to make decisions, but
not necessarily wrong.
• It is a highly complex and highly developed form of
reasoning that is based on years of experience
and learning.
• Experts now recognise that rational analysis has been
overemphasized and that relying on intuition can
improve decision making.
• It should be supplemented with evidence and good
judgement.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• Common Biases and errors in decision making:
• 1. Overconfidence Bias.
• 2. Anchoring Bias.
• 3. Confirmation Bias.
• 4. Availability Bias.
• 5. Escalation of commitment.
• 6. Randomness error.
• 7. Risk aversion.
• 8. Hindsight Bias.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• 1. Overconfidence Bias :
• Most common and most catastrophic Bias.
• “Fools rush in where Angels fear to tread”.
Individuals whose intellectual and interpersonal
abilities are weakest are most likely to
overestimate their performance and ability.
• As managers and employees learn more about an
issue, they tend to become less likely to be
overconfident about it.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• 2. Anchoring Bias : A tendency to fixate on initial
information and fail to adequately adjust for subsequent
information.
• Our mind gives a disproportionate amount of emphasis to
the first information it receives.
• Eg: Sinha and Sameer are hospital administrators looking
for a job change after 5 years of experience. Sinha was
earning 80,000 a month and Sameer 1,20,000 a month.
• Both get an offer for 1,50,000 from FORTIS hospitals. Who
is more likely to accept the offer?
• Used extensively in
management, bargaining, sales, advertising, law, real
estate.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• 3. Confirmation Bias: The tendency to seek
out information that re affirms past choices
and to discount information that contradicts
past judgements.
• We tend to accept at face value information
that confirms our preconceived views, while
we are critical and skeptical of information
that challenges these views.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• 4. Availability Bias : The tendency for people
to base their judgements on information that
is readily available to them.
• Eg. : Managers doing performance appraisals
give more weight to recent employee
behaviours than to behaviours of 6 or 9
months earlier.
• Air travel vs Car driving.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• 5.Escalation of commitment : An increased
commitment to a previous decision inspite of
negative information.
• Eg. : Throwing good money after bad in the stock
market
• Happens when individuals see themselves as the
cause of the failure.
• People who have invested more time on making
the commitment more likely to escalate.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• 6. Randomness Error: The tendency of
individuals to believe that they can predict the
outcome of random events.
• Decision making suffers when we try to create
meaning in random events.
• Eg. Superstitions
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• 7. Risk aversion : The 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.
• Eg. Sure rs.50 vs. flip of coin for rs.100. Mathematically
both are the same but which one would people
choose?
• Risk averse employees will stick to the established way
of doing things.
• Sticking with a strategy that has worked in the past
does minimise risk but in the long run it will lead to
stagnation.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• 8. Hindsight Bias: The tendency, to believe
falsely, after an outcome of an event is
actually known, that one would have
accurately predicted that outcome.
• Reduces our ability to learn from the past.
• Makes us think we are better predictors than
we are, can make us falsely confident.
• If your actual predictive accracy is 40% but
you think it is 90%, you might be in trouble.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• Influences on decision making :
• Individual differences
• 1. Personality
• 2. Gender
• 3. Mental ability
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• 1. Personality :
• Eg: People with high self esteem are strongly
motivated to maintain it, so they use the self
serving bias to preserve it. They blame others
for their failures while taking credit for
successes.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• 2. Gender :
• Rumination refers to reflecting at length. In
terms of decision making, it means
overthinking problems.
• Who ruminates more? Men or Women?
• Pros: More careful consideration of
problems.
• Cons: Can make problems harder to
solve, increase regret over past
decisions, increase depression.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• 3. Mental ability :
• Smart people are better at work.
• Once warned about decision making
errors, more intelligent people learn more
quickly to avoid them.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• Organisational constraints on decision making:
• 1. Performance evaluation
• 2. Reward systems
• 3. Formal regulations
• 4. System imposed time constraints.
• 5. Historical precedents.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• 1. Performance evaluation
• Eg.: If a hospital administrator believes the
wards under his responsibility are operating
best when he hears nothing negative, we
should not be surprised to find his ward staff
doing their best to ensure that negative
information does not reach him.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• 2. Reward systems
• Eg. From the 1930s through the
1980s, General Motors consistently gave
promotions and bonuses to managers who
kept a low profile and avoided controversy.
The became very adept at dodging tough
issues and passing controversial decisions on
to committees.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• 3. Formal regulations
• Limits decision choices.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• 4. System imposed time constraints.
• Deadlines make it difficult for managers to
gather all the information they might like
before making a final choice.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• 5. Historical precedents.
• Eg.: The largest determinant of the size of any
given year’s budget is last year’s budget.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• ETHICS IN DECISION MAKING.
• 3 Ethical decision criteria
• 1. Utilitarianism: A system in which decisions are made
to provide the greatest good for the greatest number.
• 2. Fundamental liberties and privileges:
• Eg: Protection to whistleblowers.
• 3. Justice: Equitable distribution of benefits and costs.
• Eg: Paying people the same wage for a given job
regardless of performance differences and
using seniority as the primary determination in
layoff decisions.
 PERCEPTION AND INDIVIDUAL
DECISION MAKING
• HOMEWORK: DEFINE CREATIVITY AND
DISCUSS THE THREE MODEL COMPONENT OF
CREATIVITY
• References :
• ORGANISATIONAL BEHAVIOUR - STEPHEN
ROBBINS – 14TH EDITION