LESSON 6: PERCEPTION AND INDIVIDUAL DECISION-MAKING

1. LO 1: DEFINE PERCEPTION AND EXPLAIN THE FACTORS THAT INFLUENCE IT.

a)
PERCEPTION
Definition: Perception is a process by which individuals organize and interpret their sensory impressions
in order to give meaning to their environment.

Note: It is important in OB because people’s behaviours are based on PERCEPTION of what reality is and
NOT the reality itself.

b) Factors that influence perception:

• Factors in the perceiver - Personal characteristics which includes your attitudes, personality,
motives, interests, past experiences, and expectations. For instance, if you expect police officers
to be authoritative or young people to be lazy, you may perceive them as such, regardless of
their actual traits.

• Factors in the target - Characteristics of the target also affect what we perceive. Loud people
are more likely to be noticed in a group than quiet ones. So are extremely attractive or
unattractive individuals.

• Factors in the situation - Context matters too. The time at which we see an object or event can
influence our attention, as can location, light, heat, or any number of situational factors. At a
nightclub on Saturday night, you may not notice a young guest “dressed to the nines.” Yet that
same person so attired for your Monday morning management class would certainly catch your
attention (and that of the rest of the class).

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2. LO 2: EXPLAIN ATTRIBUTION THEORY AND LIST THE THREE DETERMINANTS OF ATTRIBUTION
a)
ATTRIBUTION
Definition: An attempt to determine whether an individual’s behaviour is internally or externally caused.

• Internally caused behaviour 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 (outside
causes).

b) Factors that influence perception:

• Distinctiveness – The degree to which an individual behaves the same way in different
situations.
• Consensus - The extent to which peers in the same situation behave/perform the same way.
• Consistency – The frequency of the behavior over time

One of the most interesting findings from attribution theory research is that errors or biases distort
attributions. When we make judgments about the behavior of other people, we tend to underestimate
the influence of external factors and overestimate the influence of internal or personal factors.

• FUNDAMENTAL ATTRIBUTION ERROR The tendency to underestimate the influence of external

factors and overestimate the influence of internal factors when making judgments about the
behavior of others.

• SELF-SERVING BIAS The tendency for individuals to attribute their own successes to internal
factors and put the blame for failures on external factors
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3. LO 3: IDENTIFY THE SHORTCUTS INDIVIDUALS USE IN MAKING JUDGEMENTS ABOUT OTHERS
a) Common shortcuts in judging others
1 Selective The tendency to selectively interpret what one sees on the basis of one’s
Perception interests, background, experience, and attitudes.

2 Halo Effect The tendency to draw a general impression about an individual on the basis
of a single characteristic.

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.

4 Stereotyping Judging someone on the basis of one’s perception of the group to which that
person belongs.

b) Specific applications of shortcuts in organizations.

1 Employment • Interviewers make perceptual judgements that are often inaccurate.
Interview
• Research shows that we form impressions of others within a tenth of a second,
based on our first glance.

2 Performance • The terms self-fulfilling prophecy and Pygmalion effect describe how an
Expectations individual’s behavior is determined by others’ expectations.
• Expectations become reality.
self-fulfilling prophecy A situation in which a person inaccurately perceives a
second person, and the resulting expectations cause the second person to
behave in ways consistent with the original perception.

3 Performance • Performance evaluations very much depend on the perceptual process.

Evaluation
• Although the appraisal can be objective (for example, a sales-person is
appraised on how many dollars of sales he generates in his territory), many jobs
are evaluated in subjective terms. Subjective evaluations, though often
necessary, are problematic because all the errors discussed in (a).

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4. LO 4: EXPLAIN THE LINK BETWEEN PERCEPTION AND INDIVIDUAL DECISION-MAKING

Top managers determine their organization’s

goals, what products or services to offer, how
best to finance operations, or where to locate
a new manufacturing plant.

Individuals in organizations Middle and lower-level managers set

make decisions production schedules, select new employees,
and decide how to allocate pay raises.

Nonmanagerial employees decide how much

effort to put forth at work and whether to
comply with a boss’s request. Organizations
have begun empowering their non-managerial
employees with decision-making authority
historically reserved for managers alone.

• Decision making occurs as a reaction to a problem.

• Individual decision making is thus an important part of organizational behavior.
But the way individuals make decisions and the quality of their choices are largely influenced by their
perceptions. Every decision requires us to interpret and evaluate information.
We typically receive data from multiple sources and need to screen, process, and interpret them. Which
data are relevant to the decision, and which are not? Our perceptions will answer that question.

1 Decision Choices made from among two or more alternatives.

2 Problem A discrepancy between the current state of affairs and some desired state.

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5. LO 5: APPLY THE RATIONAL MODEL OF DECISION-MAKING AND CONTRAST IT WITH
BOUNDED RATIONALITY AND INTUITION

a) We often think the best decision maker is rational and makes consistent, value-maximizing choices within
specified constraints. These decisions follow a six-step rational decision-making model. The six steps are
listed in Exhibit 6-3.

Rational Characterized by making consistent, value-maximizing choices within

specified constraints.

Rational Decision- A decision-making model that describes how individuals should behave in
Making Model order to maximize some outcome.

b) The rational decision-making model relies on a number of assumptions:

• including that the decision maker has complete information,
• is able to identify all the relevant options in an unbiased manner, and
• chooses the option with the highest utility.
HOWEVER… Most decisions in the real world do not follow the rational model

c) Because the human mind cannot formulate and solve complex problems with full rationality, we operate
within the confines of bounded rationality. Our limited information-processing capability makes it
impossible to assimilate and understand all the information necessary to optimize. So most people
respond to a complex problem by reducing it to a level at which they can readily understand it. So people
satisfice; they seek solutions that are satisfactory and sufficient (the first acceptable one we encounter—
rather than an optimal one)

Bounded A process of making decisions by constructing simplified models that extract the
Rationality essential features from problems without capturing all their complexity.

d) Perhaps the least rational way of making decisions is intuitive decision making, an unconscious process
created from distilled experience. It occurs outside conscious thought; it relies on holistic associations, or
links between disparate pieces of information; it is fast; and it’s affectively charged, meaning it usually
engages the emotions.

Intuitive Decision-Making An unconscious process created out of distilled experience.

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6. LO 6: LIST AND EXPLAIN THE COMMON DECISION BIASES OR ERRORS
1 Overconfidence bias The tendency to be too confident about one’s ideas and decisions.

2 Anchoring bias The tendency to fixate on initial information, from which one then fails to
adequately adjust for subsequent information.

3 Confirmation bias The tendency to seek out information that reaffirms past choices and to
discount information that contradicts past judgments.

4 Availability bias The tendency for people to base their judgments on information that is
readily available to them.
5 Escalation of An increased commitment to a previous decision in spite of negative
commitment information.

6 Randomness error The tendency of individuals to believe that they can predict the outcome of
random events.
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.

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.

7. LO 7: EXPLAIN HOW INDIVIDUAL DIFFERENCES AND ORGANIZATIONAL CONSTRAINTS AFFECT

DECISION-MAKING

a) Individual differences that affect decision-making

1 Personality The little research so far conducted on personality and decision making suggests
personality does influence our decisions. Generally, achievement-oriented people
hate to fail, so they escalate their commitment, hoping to forestall failure. Dutiful
people, however, are more inclined to do what they see as best for the organization.

2 Gender Research on rumination offers insights into gender differences in decision-making.

Rumination refers to reflecting at length. In terms of decision making, it means
overthinking problems. Twenty years of study find women spend much more time
than men analyzing the past, present, and future.
3 Mental ability Smart people are just as likely to fall prey to anchoring, overconfidence, and escalation
of commitment, probably because just being smart doesn’t alert you to the possibility
you’re too confident or emotionally defensive. That doesn’t mean intelligence never
matters. Once warned about decision-making errors, more intelligent people learn
more quickly to avoid them.

4 Cultural we need to recognize that the cultural background of a decision maker can significantly
difference influence the selection of problems, the depth of analysis, the importance placed on
logic and rationality, and whether organizational decisions should be made
autocratically by an individual manager or collectively in groups
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b) Organizations can constrain decision makers, creating deviations from the rational model
1 Performance Managers are strongly influenced by the criteria on which they are evaluated. If a
evaluation division manager believes the manufacturing plants under his responsibility are
operating best when he hears nothing negative, we shouldn’t be surprised to find his
plant managers spending a good part of their time ensuring that negative information
doesn’t reach him.

2 Reward system The organization’s reward system influences decision makers by suggesting which
choices have better personal payoffs. If the organization rewards risk aversion,
managers are more likely to make conservative decisions.

3 Formal All but the smallest organizations create rules and policies to program decisions and
regulations get individuals to act in the intended manner. And of course, in so doing, they limit
decision choices.

4 System Almost all important decisions come with explicit deadlines. A report on new-product
imposed time development may have to be ready for executive committee review by the first of the
constraint month. Such conditions often make it difficult, if not impossible, for managers to
gather all the information they might like before making a final choice.
5 Historical Decisions aren’t made in a vacuum; they have a context. In fact, individual decisions
precedents are points in a stream of choice. Those made in the past are like ghosts that haunt and
constrain current choices. Choices made today are largely a result of choices made
over the years.

8. LO 8: CONTRAST THE THREE ETHICAL DECISION CRITERIA

1 Utilitarianism Proposes making decisions solely on the basis of their outcomes, ideally to provide the
greatest good for the greatest number. This view dominates business decision making.
It is consistent with goals such as efficiency, productivity, and high profits.
utilitarianism A system in which decisions are made to provide the greatest good for
the greatest number

2 Rights To make decisions consistent with fundamental liberties and privileges, as set forth in
documents such as the Bill of Rights. An emphasis on rights in decision making means
respecting and protecting the basic rights of individuals, such as the right to privacy,
free speech, and due process.
This criterion protects whistle-blowers when they reveal an organization’s unethical
practices to the press or government agencies, using their right to free speech.

whistle-blowers Individuals who report unethical practices by their employer to

outsiders

3 Justice To impose and enforce rules fairly and impartially to ensure justice or an equitable
distribution of benefits and costs. Union members typically favor this view. It justifies
paying people the same wage for a given job regardless of performance differences
and using seniority as the primary determination in layoff decisions.
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9. LO 9: DEFINE CREATIVITY AND DISCUSS THE THREE COMPONENT MODEL OF CREATIVITY

a) Creativity Definition: The ability to produce novel (original) and useful ideas.

b) Three-component The proposition that individual creativity requires expertise, creative

model of creativity thinking skills, and intrinsic task motivation.

Component 2:
Component 1:
Creative thinking
Expertise
skills

Component 3:
Intrinsic task
Creativity
motivation

• Expertise is the foundation for all creative work. Film writer,

producer, and director Quentin Tarantino spent his youth
working in a video rental store, where he built up an
encyclopaedic knowledge of movies. The potential for
creativity is enhanced when individuals have abilities,
knowledge, proficiencies, and similar expertise in their field of
endeavour. You wouldn’t expect someone with minimal
knowledge of programming to be very creative as a software
engineer.

• The second component is creative-thinking skills. This

encompasses personality characteristics associated with
creativity, the ability to use analogies, and the talent to see the
familiar in a different light.

• The final component in the three-component model of

creativity is intrinsic task motivation. This is the desire to work
on something because it’s interesting, involving, exciting,
satisfying, or personally challenging. It’s what turns creativity
potential into actual creative ideas.