Michael has just engaged in rational decision making. He considered multiple criteria, weighed the options, and selected the alternative he perceived as best.

1. Chapter FIVE
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?
• 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.
Perception
A process by which
individuals organize and
interpret their sensory
impressions in order to
give meaning to their
environment.

4. Factors That
Influence
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.
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
Perception
of the
decision
maker
Outcomes
Problem
A perceived discrepancy
between the current state of
affairs and a desired state.
Decisions
Choices made from among
alternatives developed from
data perceived as relevant.

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

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
1. Define the problem.
2. Identify the decision criteria.
3. Allocate weights to the criteria.
4. Develop the alternatives.
5. Evaluate the alternatives.
6. 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
Source: A.J. Rowe and J.D. Boulgarides, Managerial Decision E X H I B I T 5–5
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
1. Analyze the situation and adjust your decision
making style to fit the situation.
2. Be aware of biases and try to limit their impact.
3. Combine rational analysis with intuition to
increase decision-making effectiveness.
4. Don’t assume that your specific decision style is
appropriate to every situation.
5. 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.
Source: S.P. Robbins, Decide & Conquer: Making Winning Decisions and Taking Control E X H I B I T 5–5
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.