Perception and Individual Decision Making

1. ChapterFIVE Perception and Individual Decision Making

2. Learning Objectives • Explain how two people can see the same thing and interpret it differently • List the three determinants of attribution • Describe how shortcuts can assist in or distort our judgment of others • Explain how perception affects the decision making process • Outline the six steps in the rational decision making model • Describe the actions of the boundedly rational decision maker • List and explain the common decision biases or errors • Identify the conditions in which individuals are most likely to use intuition in decision making • Contrast the three ethical decision criteria

3. What Is Perception, and Why Is It Important? Perception A process by which individuals organize and interpret their sensory impressions in order to give meaning to their environment. • People’s behavior is based on their perception of what reality is, not on reality itself. • The world as it is perceived is the world that is behaviorally important.

4. Factors ThatInfluence Perception E X H I B I T 5–1

5. Internal vs. External • Internally - caused behaviors are those that are believed to be under the personal control of the individual. • Externally - caused behavior seen as resulting from outside causes i.e., the person is seen as having been forced into the behavior by the situation. • Example – If one of your employee is late for work, how will you perceive his lateness, as a manager?

6. Person Perception: Making Judgments About Others Attribution Theory When individuals observe behavior, they attempt to determine whether it is internally or externally caused. Determination, however, depends on three factors: Distinctiveness: shows different behaviors in different situations. Consensus: response is the same as others to same situation. Consistency: responds in the same way over time.

7. Distinctiveness : what we want to know is whether this behavior is unusual. If it is, the observer is likely to give the behavior an external attribution. If this action is not unusual, it will be judged as internal. • Consensus : if everyone who is faced with a similar situation responds in the same way, we can say the behavior shows consensus. From an attribution point of view, if consensus is high, you would be expected to give an external attribution to the employee’s tardiness. • Consistency : the more consistent the behavior, the more the observer is inclined to attribute it to internal causes.

8. Attribution Theory E X H I B I T 5–2

9. Errors and Biases in Attributions Fundamental Attribution Error One of the more interesting findings from the attribution theory is that there are errors or biases that distort attributions. The tendency to underestimate the influence of external factors and overestimate the influence of internal factors when making judgments about the behavior of others. In general, we tend to blame the person first, not the situation.

10. Errors and Biases in Attributions (cont’d) Self-Serving Bias The tendency for individuals to attribute their own successes to internal factors while putting the blame for failures on external factors. Thought: When student gets an “A” on an exam, they often say they studied hard. But when they don’t do well, how does the self serving bias come into play? Hint: Whose fault is it usually when an exam is “tough”?

11. Frequently Used Shortcuts in Judging Others Selective Perception People selectively interpret what they see on the basis of their interests, background, experience, and attitudes. Selective perception allows us to “speed-read” others, but not without the risk of drawing an inaccurate picture. Dearborn & Simon’s perceptual study – 23 business executives,06 from sales, 05 from production, 04 from accounting & 08 from miscellaneous functions.

12. Frequently Used Shortcuts in Judging Others Halo Effect Drawing a general impression about an individual on the basis of a single characteristic-appearance, intelligence etc. Halo Effect:the tendency of a favorable (or unfavorable) impression created by an individual in one area to influence one's judgment of him or her in other areas; Contrast Effects Evaluation of a person’s characteristics that are affected by comparisons with other people recently encountered who rank higher or lower on the same characteristics

13. Frequently Used Shortcuts in Judging Others Projection Attributing one’s own characteristics to other people- can distort perceptions made about others.It is easy to judge others if we assume that they are similar to us. Stereotyping Judging someone on the basis of one’s perception of the group to which that person belongs.

14. Specific Applications in Organizations • Employment Interview • Perceptual biases of raters affect the accuracy of interviewers’ judgments of applicants. • Performance Expectations • Self-fulfilling prophecy (Pygmalion effect): The lower or higher performance of employees reflects preconceived leader expectations about employee capabilities. • Ethnic Profiling • A form of stereotyping in which a group of individuals is singled out—typically on the basis of race or ethnicity—for intensive inquiry, scrutinizing, or investigation.

15. Specific Applications in Organizations (cont’d) • Performance Evaluations • An employee’s performance appraisal is very much dependent on the perceptual process. • Appraisals are often the subjective (judgmental) perceptions of appraisers of another employee’s job performance. • What happens when performance appraisals are subjective as compared to objective ? • Subjective measures are easier to implement, they provide managers with greater discretion, and many jobs do not readily lend themselves to objective measures.

16. The Link Between Perceptions and Individual Decision Making ProblemA perceiveddiscrepancy between the current state of affairs and a desired state. Perception of the decision maker DecisionsChoices made from among alternatives developed from data perceived as relevant. Outcomes

17. Assumptions of the Rational Decision-Making Model Rational Decision-Making Model Describes how individuals should behave in order to maximize some outcome. • Model Assumptions • Problem clarity • Known options • Clear preferences • Constant preferences • No time or cost constraints • Maximum payoff

18. Rational Decision Making Assumptions • Problem Clarity – there is no ambiguity. Complete information about the dimensions of the problem are available to the decision maker. • Known Options – decision maker is able to identify all the viable alternative, also is aware of all the possible consequences of each alternative. • Clear Preferences – rationality assumes that the criteria & alternatives can be ranked & weighted to reflect their importance. • Constant Preferences – specific decision criteria are constant & the weights assigned to them are stable over time. • No Time or Cost Constraint - • Maximum Payoff – rational decision maker will choose the alternative with highest perceived value.

19. Steps in the Rational Decision-Making Model • Define the problem. • Identify the decision criteria. • Allocate weights to the criteria. • Develop the alternatives. • Evaluate the alternatives. • Select the best alternative. E X H I B I T 5–3

20. The Three Components of Creativity Creativity Rational decision maker needs creativity - the ability to produce novel and useful ideas. Three-Component Model of Creativity Proposition that individual creativity requires expertise, creative-thinking skills, and intrinsic task motivation. E X H I B I T 5–4 Source: T.M. Amabile, “Motivating Creativity in Organizations,” California Management Review, Fall 1997, p. 43.

21. How Are Decisions Actually Made in Organizations? • When faced with a complex problem, most people respond by reducing the problem to a level at which it can be readily understood. • This is because the limited information-processing capability of human beings make it impossible to assimilate & understand all the information necessary to optimize. • So, people SATISFICE, i.e., they seek solutions that are satisfactory & sufficient.

22. How Are Decisions Actually Made in Organizations? Because the capacity of human mind for formulating & solving complex problems is far too small to meet the requirements for full rationality, individuals operate within the confines of bounded rationality. Bounded Rationality Individuals make decisions by constructing simplified models that extract the essential features from problems without capturing all their complexity.

23. How Are Decisions Actually Made in Organizations? (cont’d) • How/Why problems are Identified • Visibility over importance of problem • Attention-catching, high profile problems • Desire to “solve problems” • Self-interest (if problem concerns decision maker) • Alternative Development • Satisficing: seeking the first alternative that solves problem. • Engaging in incremental rather than unique problem solving through successive limited comparison of alternatives to the current alternative in effect.

24. Common Biases and Errors • Overconfidence Bias • Believing too much in our own ability to make good decisions. • Anchoring Bias • Using early, first received information as the basis for making subsequent judgments. • Confirmation Bias • Using only the facts that support our decision.

25. Common Biases and Errors • Availability Bias • Using information that is most readily at hand. • Recent • Vivid • Representative Bias • “Mixing apples with oranges” • Assessing the likelihood of an occurrence by trying to match it with a preexisting category using only the facts that support our decision. • Winner’s Curse • Highest bidder pays too much • Likelihood of “winner’s curse” increases with the number of people in auction.

26. Common Biases and Errors • Escalation of Commitment • In spite of new negative information, commitment actually increases! • Randomness Error • Creating meaning out of random events • Hindsight Bias • Looking back, once the outcome has occurred, and believing that you accurately predicted the outcome of an event

27. Intuition • Intuitive Decision Making • An unconscious process created out of distilled experience. • Conditions Favoring Intuitive Decision Making • A high level of uncertainty exists • There is little precedent to draw on • Variables are less scientifically predictable • “Facts” are limited • Facts don’t clearly point the way • Analytical data are of little use • Several plausible alternative solutions exist • Time is limited and pressing for the right decision

28. Decision-Style Model – Individual Differences E X H I B I T 5–5 Source: A.J. Rowe and J.D. Boulgarides, Managerial Decision Making, (Upper Saddle River, NJ: Prentice Hall, 1992), p. 29.

29. Decision-Style Model…..continued • The basic foundation of the model is the recognition that people differ along two dimensions. • First is their way of thinking. • Some people are logical & rational. • They process information serially. • In contrast some people are intuitive & creative. They perceive things as a whole. • Second dimension addresses a person’s tolerance for ambiguity. • Some people have a high need to structure information in ways that minimize ambiguity.

30. Decision-Style Model…..continued • While others are able to process many thoughts at the same time. • Directive Style – have a low tolerance for ambiguity & seek rationality. They are efficient & logical. They make decisions fast & they focus on the short run. • Analytical Type – has a much greater tolerance for ambiguity. This leads to the desire for more information & consideration for more alternatives than is true for directives. They are careful decision makers with the ability to adapt to or cope with novel & unexpected situations.

31. Decision-Style Model…..continued • Conceptual Style – tend to use data from multiple sources & consider many alternatives. Their focus is long range, and they are very good at finding creative solutions to problems. • Behavioral Style – are decision makers who have a strong concern for the people in the org. & their development. They’re concerned with the well being of their subordinates & are receptive to suggestions from others. They tend to focus on the short term & to downplay the use of data in their decision making. This type of manager tries to avoid conflict & seeks acceptance.

32. Organizational Constraints on Decision Makers • Performance Evaluation • Evaluation criteria influence the choice of actions. • Reward Systems • Decision makers make action choices that are favored by the organization. • Formal Regulations • Organizational rules and policies limit the alternative choices of decision makers. • System-imposed Time Constraints • Organizations require decisions by specific deadlines. • Historical Precedents • Past decisions influence current decisions.

33. Cultural Differences in Decision Making • Problems selected • Time orientation • Importance of logic and rationality • Belief in the ability of people to solve problems • Preference for collective decision making

34. Ethics in Decision Making • Ethical Decision Criteria • Utilitarianism • Seeking the greatest good for the greatest number. • Rights • Respecting and protecting basic rights of individuals such as whistleblowers. • Justice • Imposing and enforcing rules fairly and impartially.

35. Ethics in Decision Making • Ethics and National Culture • There are no global ethical standards. • The ethical principles of global organizations that reflect and respect local cultural norms are necessary for high standards and consistent practices.

36. Ways to Improve Decision Making • Analyze the situation and adjust your decision making style to fit the situation. • Be aware of biases and try to limit their impact. • Combine rational analysis with intuition to increase decision-making effectiveness. • Don’t assume that your specific decision style is appropriate to every situation. • Enhance personal creativity by looking for novel solutions or seeing problems in new ways, and using analogies.

37. Toward Reducing Bias and Errors • Focus on goals. • Clear goals make decision making easier and help to eliminate options inconsistent with your interests. • Look for information that disconfirms beliefs. • Overtly considering ways we could be wrong challenges our tendencies to think we’re smarter than we actually are. • Don’t try to create meaning out of random events. • Don’t attempt to create meaning out of coincidence. • Increase your options. • The number and diversity of alternatives generated increases the chance of finding an outstanding one. E X H I B I T 5–5 Source: S.P. Robbins, Decide & Conquer: Making Winning Decisions and Taking Control of Your Life (Upper Saddle River, NJ: Financial Times/Prentice Hall, 2004), pp. 164–68.

38. Chapter Check-Up: Perception It’s your little sister’s senior Prom night, and she notices that everyone is wearing the same dress she has on! Which perceptual shortcut may be occurring? • Escalation of commitment • Representative bias • Availability Bias • Hindsight Bias

39. Chapter Check-Up: Perception It’s your little sister’s senior Prom night, and she notices that everyone is wearing the same dress she has on! Which perceptual shortcut may be occurring? • Escalation of commitment • Representative bias • Availability Bias • Hindsight Bias Discuss with your neighbor what the answer would be if your sister came home and said “I just knew that everyone would buy that dress!”

40. Chapter Check-Up: Perception If all of these perceptual shortcuts happen unconsciously, how can we keep the stereotypes we have from interfering with the way we work in group projects? Identify two specific things you could do to help prevent stereotypes from inhibiting effective group relationships. Discuss with a neighbor.

41. Chapter Check-Up: Decision Making Michael has just discovered he is double registered for two classes at the same time and must make a decision about which one to take this semester. He considers the professor teaching this semester, the time of the class, and the classes his friends are taking. He then considers his options for when he can take each class again, as well as the costs and benefits for taking each this semester versus later next year. He then makes his decision. Michael has just engaged in what?

42. Chapter Check-Up: Decision Making In making his decision, Michael forgot to consider the implications of the color of paint in the room where each class was being offered. Given that room color can influence mood, which can influence performance, why didn’t Michael consider it?

43. Chapter Check-Up: Decision Making Michael engaged in the rational decision making model, and didn’t consider the paint color of the rooms because he operates under the confines of bounded rationality.

44. Chapter Checkup: What biases might have affected Martha Stewart’s judgment? Discuss with a classmate.