Chapter 6: Perception and Individual Decision Making

*Define perception and explain the factors that influence it:

Perception – process by which individuals organize and interpret their sensory impressions in order to give meaning
to their environment; what we perceive can be substantially different from objective reality
Ex. – all employees in a firm may view it as a great place to work – favorable working conditions, interesting
job assignments, good pay, excellent benefits, understanding and responsible management – but, as most of
us know, it’s very unusual to find such agreement
**the world as it is perceived is the world that is behaviorally important
Factors that influence perception:
- Perceiver:
o Interpretation is heavily influenced by personal characteristics – personality, attitudes, motives,
interests, past experiences, expectations
o Ex. – expect police officers to be authoritative or young people to be lazy, you may perceive them as
such, regardless of their actual traits
- Target:
o Target’s characteristics also affect perception
o Loud people, extremely attractive/unattractive are more likely to be noticed in a group
o We don’t look at targets in isolation, so relationship of target to background also influences
perceptions; as does our tendency to group like things together
o Often perceive women, men, Whites, African Americans, Asians, any other group with clearly
distinguishable characteristics as alike
- Situation:
o Context also matters
o Time at which we seen an object or event can influence our attention, as can location, light, heat, or
any number of situational factors
o Ex. – at a nightclub on Saturday, you may not notice a guest “dressed to the nines;” however, if they
are wearing the same outfit in class on Monday, it would catch your attention
 Neither the perceiver nor the target has changed between Saturday night and Monday, but
the situation is different
Attribution Theory – tries to explain the ways in which we judge people differently, depending on the meaning we
attribute to a given behavior
- Suggests that when we observe an individual’s behavior, we attempt to determine whether it was internally
or externally caused
- Three factors
1. Distinctiveness
a. Whether or not an individual displays different behaviors in different situations
2. Consensus
a. If everyone who faces a similar situation responds in the same way
3. Consistency
a. Whether or not an individual responds the same way over time
- Internally caused behaviors are those an observer believes to be under the personal behavioral control of
another individual
- Externally caused behavior is what we imagine the situation forced the individual to do
- Fundamental attribution error – we tend to underestimate the influence of external factors and
overestimate the influence of internal personal factors
o A sales manager is prone to attribute their own successes to internal factors such as ability or effort,
while blaming failure on external factors such as bad luck or noisy co-workers
 - Self-serving bias – people tend to attribute ambiguous information as relatively flattering and accept positive
feedback while rejecting negative feedback
o Korean managers less likely to use
o Tend to accept responsibility for group failure; “I was not a capable leader”
o Asian managers are more likely to blame institutions or whole organizations
o Western observers believe individual managers should get blame or praise

*Identify the shortcuts individuals use in making judgments about others:

Selective Perception – any characteristic that makes a person, an object, or an event stand out will increase the
probability we will perceive it
- Allows us to “speed-read” others
- Runs the risk of drawing an inaccurate picture
- We can draw unwarranted conclusions from an ambiguous situation
Halo Effect – when we draw a general impression about an individual on the basis of a single characteristic
(intelligence, sociability, appearance, etc.)
Contrast Effects – we don’t evaluate a person in isolation, our reaction is influenced by other persons we have
recently encountered
Stereotyping – when we judge someone on the basis of our perception of the group in which he belongs

*Explain the link between perception and decision making:

- Decision making occurs as a reaction to a problem
- Awareness that a problem exists and that a decision might or might not be needed is a perceptual issue
- Every decision requires us to interpret and evaluate information
- Typically receive data from multiple sources and need to screen, process, and interpret them
o Perception will help to decide which data are relevant to decision
o Perceptual process will affect final outcome
- Throughout entire decision-making process, perceptual errors often surface that can bias analysis and
conclusions
Rational Decision Making  making consistent, value-maximizing choices within specified constraints
1. Define the problem
2. Identify the decision criteria
3. Allocate weights to the criteria
4. Develop alternatives
5. Evaluate the alternatives
6. Select the best alternatives
Bounded Rationality  constructing simplified models that extract the essential features from problems without
capturing all their complexity; we can then behave rationally within the limits of the simple model
- Solution represents the first acceptable choice encountered, as opposed to an optimal one
Intuition  unconscious process created from distilled experience; occurs outside conscious thought; relies on
holistic associations, or links between disparate pieces of information
- Affectively charged  engages the emotions
- Irrational, but not necessarily wrong
*List and explain the common decision biases or errors:
How to avoid falling into biases and errors:
- Focus on goals
- Look for information that disconfirms your beliefs
- Don’t try to create meaning out of random events
- Increase your options
Overconfidence Bias:
- Individuals whose intellectual and interpersonal abilities are weakest are most likely to overestimate their
performance and ability
- Negative relationship between entrepreneurs’ optimism and the performance of their new ventures: the
more optimistic, the less successful
- The tendency to be too confident about their ideas might keep some from planning how to avoid problems
that arise
Anchoring Bias:
- Tendency to fixate on initial information and failure to adequately adjust for subsequent information
- Widely used by people in professions in which persuasion skills are important
Confirmation Bias:
- Represents a specific case of selective perception: we seek out information that reaffirms our past choices,
and we discount information that contradicts them
- Tend to accept at face value information that confirms our preconceived views, while we are critical and
skeptical of information that challenges them
- More prone to confirmation bias when we believe we have good information and strongly believe in our
opinions
Availability Bias:
- Tendency to base judgments on information readily available
- Events that evoke emotions, are particularly vivid, or are more recent tend to be more available in our
memory, leading us to overestimate the chances of unlikely events such as an airplane crash
- Availability bias can also explain why managers doing performance appraisals give more weight to recent
employee behaviors
Escalation of Commitment:
- Staying with a decision even when there is clear evidence it’s wrong
- Individuals escalate commitment to a failing course of action when they view themselves as responsible for
the failure
- Meant to demonstrate their initial decision wasn’t wrong and to avoid admitting they made a mistake
- People who carefully gather and consider information consistent with the rational decision-making model
are more likely to engage in escalation of commitment
Randomness Error:
- Tendency to believe we can predict the outcome of random events
- Decision making suffers when we try to create meaning in random events, particularly when we turn
imaginary patterns into superstitions
- Superstitious behavior can be debilitating when it affects daily judgments or biases major decisions
Risk Aversion:
- Tendency to prefer a sure thing over a risky outcome
- Risk-averse employees will stick with the established way of doing their jobs, rather than taking a chance on
innovative or creative methods
- Sticking with a strategy that has worked in the past does minimize risk, but in the long run will lead to
stagnation
Hindsight Bias:
- Tendency to believe falsely, after the outcome is known, that we’d have accurately predicted it

Organizational Constraints on Decision-Making:

- Performance evaluation
- Reward systems
- Formal regulations
- System-imposed time constraints
- Historical precedents
*Contrast the three ethical decision criteria:
1. Utilitarianism  proposes making decisions solely on the basis of their outcomes
a. Ideally to provided greatest good for greatest number
b. Dominates business decision making
c. Consistent with goals of efficiency, productivity, and high-profits
d. Can sideline the rights of some individuals, particularly those with minority representation
2. Make decisions consistent with fundamental liberties and privileges
a. Respecting and protecting the basic rights of individuals, such as right to privacy, free speech, and
due process
b. Protects whistleblowers when they reveal an organization’s unethical practices to the press or
government agencies, using right to free speech
c. Can create a legalistic environment that hinders productivity and efficiency
3. Impose and enforce rules fairly and impartially to ensure justice or an equitable distribution of benefits and
costs
a. Union members usually favor this
b. Justifies paying people the same wage for a given job regardless of performance differences and
using seniority as the primary determination in layoff decisions
c. Can encourage a sense of entitlement that reduces risk taking, innovation, and productivity

*Define creativity and discuss the three-component model of creativity:

Creativity – the ability to produce novel and useful ideas
- Intelligent people and those who score high on openness to experience are more likely to be creative
- Other traits: independence, self-confidence, risk taking, an internal focus of control, tolerance for ambiguity,
low need for structure, and perseverance
- Exposure to variety of cultures can improve creativity
Three-Component Model of Creativity
*proposes that individual creativity essentially requires expertise, creative-thinking skills, and intrinsic task
motivation  higher the level of each, the higher the creativity
1. Expertise  foundation for all creative work
a. Potential for creativity is enhanced when individuals have abilities, knowledge, proficiencies, and
similar expertise in their field of endeavor
2. Creative-Thinking Skills  encompasses personality characteristics associated with creativity, ability to use
analogies, and the talent to see the familiar in a different light
3. Intrinsic Task Motivation  the desire to work on something because it’s interesting, involving, exciting,
satisfying, or personally challenging
a. it’s what turns creativity potential into actual creative ideas