The document discusses various topics related to perception, decision-making, and problem-solving. It describes factors that can influence perception like primacy effect, recency effect, and availability bias. It also discusses models of decision-making like rational decision-making and prospect theory. Prospect theory notes that people are averse to losses and will take risks to avoid losses. Intuition and various decision traps that can negatively impact decision-making are also examined. The document concludes with sections on creative problem-solving and how leaders can support creativity in their employees.

1. Chapter 5: Perception,
Decision-Making, and
Problem-Solving

2. Would You Be Happier If You Were
Richer?
• Focusing illusion--the tendency to overestimate
the effect of a single factor on one’s life
satisfaction
• Example: Income
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3. What Is It?
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4. Did You See It?
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5. What Is Perception?
• A leader must understand that each person’s
perception is their reality and this is how they
will interpret the leader’s actions and
everything else that happens at the work place
• Perceptions can change
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6. Understanding Why People Don’t See
Eye To Eye
• Perceptual errors:
• Primacy effect
• Recency effect
• Availability bias
• Contrast effects
• Halo error (Horns error)
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7. Understanding Why People Don’t See
Eye To Eye (Cont.)
• Primacy Effect
• Belief perseverance
• Once a person has formed an initial impression,
they maintain it even when presented with concrete
evidence that it is false.
• Example: first impressions
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8. Understanding Why People Don’t See
Eye To Eye (Cont.)
• Recency Effect
• Not only do people remember what they experience
first, they also remember the most recently
presented items or experiences
• Example: reading misspelled words
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9. Understanding Why People Don’t See
Eye To Eye (Cont.)
• Can you understand this? Why?
• i cdnuolt blveiee taht i cluod aulaclty uesdnatnrd
waht i was rdanieg. the phaonmneal pweor of the
hmuan mind is amazanig. aoccdrnig to a
rscheearch taem at cmabrigde uinervtisy, it deosnt
mttaer in waht oredr the ltteers in a wrod are, the
olny iprmoatnt tihng is taht the frist and lsat ltteer be
in the rghit pclae. the rset can be a taotl mses and
you can sitll raed it wouthit a porbelm. amazanig ?
and yuo awlyas thohgut slpeling was ipmorantt
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10. Understanding Why People Don’t See
Eye To Eye (Cont.)
• The Availability Bias
• When a person’s judgments are based on what
most readily comes into a person’s mind
• Example: How many words in the English language start
with the letter R?
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11. Understanding Why People Don’t See
Eye To Eye (Cont.)
• Contrast Effects
• Comparisons based on what has happened just
before we make a decision or judgment
• Example: Interviewing job applicants
• Contrast effects are among the most significant
decision biases for a leader to guard against
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Understanding Why People Don’t See
Eye To Eye (Cont.)

13. Understanding Why People Don’t See
Eye To Eye (Cont.)
• Halo Error
• Halo (or its opposite, horns) error occurs when the
rater's overall positive (or negative) impression
strongly influences ratings of specific attributes
• Example: performance appraisals
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Self-Fulfilling Prophecies During
The Application Process

15. Individual Decision-Making
• The Top Five Business Decisions
• Henry Ford’s decision to double the salaries of Ford’s
workforce
• The Apple board’s decision to bring back Steve Jobs
after he had been fired 10 years earlier
• Sam Walton’s decision to hold Saturday morning all-
employee meetings
• Samsung’s decision to create a sabbatical program that
allows their top performers to travel all over the world
• Jack Welch’s decision to create Crotonville, a training
and development center that produced hundreds of
great leaders who practice the “GE Way”
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16. Individual Decision-Making (Cont.)
• Decision Processes and Organizational
Performance
• Procedural rationality
• Related to the success of strategic decisions
• Managers who collect information and use analytical
techniques to make decisions are more effective
• Good information and analysis are more important
than politics to effective decision-making
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17. Individual Decision-Making (Cont.)
• Mintzberg’s Research
• Managers play four decisional roles:
• Entrepreneur
• Disturbance handler
• Resource allocator
• Negotiator
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18. Individual Decision-Making (Cont.)
• Why Some People Can’t Make Decisions
• Sources of indecisiveness
• Personality traits
• Complex nature of situations faced in rapidly changing
environments:
• Lack of information
• Unclear or conflicting goals
• Uncertainty of outcomes
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19. Individual Decision Making (Cont.)
• Constraints On Individual Decision Making
• Three situational factors may hinder decision
making:
• Lack of information
• Unclear or conflicting goals
• The uncertainty of outcomes
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The Rational Decision-Making
Model

21. The Rational Decision-Making
Model (Cont.)
• Limitations of the Rational Model
• Decision makers
• Don’t have complete information
• Can’t develop and accurately weight an exhaustive list of
alternatives
• Consider only a few alternatives
• Suboptimize
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22. The Rational Decision-Making
Model (Cont.)
• Bounded Rationality
• Decision makers have limits on ability to assimilate
large amounts of information
• Results from:
• Organizational factors
• Individual limits on the ability to process information
• Perceptions
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23. Prospect Theory
• Focuses on risk perceptions
• People are willing to settle for a reasonable gain
• People are willing to engage in risk-seeking
behaviors where they can limit their losses
• Losses weigh more heavily in decision making
than equivalent gains (emotions influence
decision making)
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24. Prospect Theory (Cont.)
• Consider the Following:
• You have US$1,000 and you must pick one of the
following choices:
• Choice A: You have a 50% chance of gaining
US$1,000, and a 50% chance of gaining US$0
• Choice B: You have a 100% chance of gaining
US$500
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25. Prospect Theory (Cont.)
• Consider the Following Part 2:
• You have US$2,000 and you must pick one of the
following choices:
• Choice A: You have a 50% chance of losing
US$1,000, and 50% of losing US$0
• Choice B: You have a 100% chance of losing
US$500
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26. Prospect Theory (Cont.)
• Results
• How many picked A for Part 1
• How many picked B for Part 2
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27. Prospect Theory (Cont.)
• The Importance of How Decisions are Framed
• Leaders must pay attention to how decisions are
framed when they are presented.
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28. Prospect Theory (Cont.)
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29. Intuition
• Automatic and effortless decision making that
is often involuntary
• Four characteristics:
• Nonconscious processes
• Involve holistic associations
• Produced rapidly
• Resulting in affectively charged judgments
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30. Intuition (Cont.)
• Benefits of Intuition
• Expedites decision making
• Improves the decision in some way
• Facilitates personal development
• Promotes decisions compatible with company culture
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31. Intuition (Cont.)
• ”Wicked Organizational Problems”
• Some problems have learning environments
that are “kind” in that they can be structured so
analysis or heuristics can be applied
• Other problems are “wicked” because they are
complex and dynamic, and there may be limits
to whether analysis or heuristics can be
applied
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32. Decision Traps
• Hindsight Bias ("I-knew-it-all-along" effect)
• Tendency for individuals with outcome
knowledge (hindsight) to claim they would have
estimated a probability of occurrence for a
reported outcome that is higher than they
would have estimated in foresight (without the
outcome information)
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33. Decision Traps (Cont.)
• Overconfidence Bias (sometimes referred to as
“hubris”)
• Inflated confidence in how accurate a person’s
knowledge or estimates are
• Leaders with more power tend to have more
overconfidence bias
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34. Decision Traps (Cont.)
• Escalation of Commitment
• Individuals continue a failing course of action after
receiving feedback that shows it isn’t working.
• Sunk costs fallacy: continued commitment because
a person has already invested in a course of action
and does not recognize what they invested initially
is sunk (gone)
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Decision Traps (Cont.)

36. Creative Problem Solving
• Creativity: The tendency to generate or
recognize ideas, alternatives, or possibilities
that may be useful in solving problems,
communicating with others, and entertaining
ourselves and others
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37. Creative Problem Solving (Cont.)
• Going With the Flow
• Creative experiences are linked to emotional states
called flow in which a person experiences a
challenging opportunity aligned with her skills.
• When both challenges and skills are high, people
learn more during optimal flow experience.
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38. Creative Problem Solving (Cont.)
• Three-Component Model
• Expertise refers to knowledge (technical, processes
and academic)
• Creative thinking skills are how adaptable and
imaginative individuals in the organization are
• Motivation refers to the intrinsic form of motivation --
the urgent need to solve the problem faced and not
the monetary rewards expected
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39. Creative Problem Solving (Cont.)
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40. Creative Leadership
• Problem finding
• Problem-solving
• Solution implementation
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Creative Leadership Model

42. Leadership Implications: How Leaders
Support Creativity
• Enhance creative problem solving
• Innovative styles and intrinsic motivation
combine with LMX to produce more creativity
• Leader expectations and support increase
creative self-efficacy
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