Chapter 6:

Perception & Individual Decision Making

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Perception

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 What is Perception?
• Perception is a process by which
individuals organize and interpret their
sensory impressions in order to give
meaning to their environment.
• Perception is the process through
which the information from outside
environment is selected, received,
organized, and interpreted to make it
meaningful to someone. 3
 …What is Perception?
• Perception is the process of interpreting
something that we see or hear in our mind and use
it later to judge and give a verdict on a situation,
person, group etc.
• What we perceive can be substantially different
from objective reality. For example, It is possible
that 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 known, it’s very
unusual to find such agreement. 4
 Video Clip:
What is Perception?

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 Why is Perception Important in the
Study of OB?
Perception is important because people’s behavior is
based on their perception of what reality is, not on
reality itself.
• What employees perceive from their work situation
influences their productivity. So, it is necessary for
employers to assess how workers perceive their jobs.
• Individuals who perceive their jobs as negative are
likely to have increased absenteeism, more frequent
turnover and less job satisfaction.
• Perception influences decision-making within an
organization. 6
 Factors that Influence Perception
There are many factors that influence how something
is perceived. These factors can reside in the perceiver,
in the object or target being perceived, or in the
context of the situation in which the perception is
made.
1. Factors pertaining to the perceiver: the person’s
attitudes, motives, interests, experience and
expectations.
2. Factors related to the actual target: novelty, motion,
sounds, size, background, proximity and similarity.
3. Factors associated with the context: time, work
setting and social setting.
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…Factors that Influence Perception

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 Attribution Theory
Attribution theory attempts to explain the world and to
determine the cause of an event or behavior.
• It is an attempt to determine whether an individual’s
behavior is internally or externally caused (Internally
caused behaviors are those we believe to be under the
personal control of the individual. Externally caused
behavior is what we imagine the situation forced the
individual to do).
• Example: If one employee is late for work, manager might
attribute that to his partying into the wee hours and then
oversleeping. This is an internal attribution. But if
manager attribute lateness to an automobile accident
that tied up traffic, he is making an external attribution.9
 Video Clip:
Attribution Theory

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 …Attribution Theory
Key Elements of Attribution Theory: When we observe an
individual’s behavior, we attempt to determine whether it was
internally or externally caused. That determination depends largely
on three factors:
1. Distinctiveness: Distinctiveness refers to whether an individual
displays different behaviors in different situations. Is the employee
who arrives late today also one who regularly “blows off”
commitments? What we want to know is whether this behavior is
unusual. If it is, we are likely to give it an external attribution.
2. Consensus: If everyone who faces a similar situation responds in
the same way, we can say the behavior shows consensus. If
consensus is high, you would probably give an external attribution.
3. Consistency: Responds in the same way over time. The more
consistent the behavior, the more we are inclined to attribute it to
internal causes.
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…Attribution Theory

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 …Attribution Theory
• 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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 Common Shortcuts in Judging Others
There are various types of errors or short-cut methods which are
frequently used by the individuals while observing others in our
day-to-day life due to faulty perceptual process and make a
wrong decision:
1. Selective Perception: Selective perception is a process by which
one only perceives what he feels is right, completely ignoring the
opposing viewpoints. Example: You are told smoking is a bad
habit, and before you even know a person, you label him as bad,
because he smokes.
2. Halo Effect (also known as the physical attractiveness stereotype
and the "what is beautiful is good" principle): The tendency to
draw a general impression about an individual on the basis of a
single characteristic. Example: A tall or good-looking person will
be perceived as being intelligent and trustworthy, even though
there is no logical reason to believe that height or looks correlate
with smarts and honesty. 14
 …Common Shortcuts in Judging Others
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. Example: When
you meet two other people, you are likely to compare
each against the other on several dimensions to
decide which you prefer. This may include physical
beauty, similarity of interests and various personality
factors. 
4. Stereotyping: Judging someone on the basis of one’s
perception of the group to which that person belongs.
Example: ‘All Blacks are good at sports’ / ‘Girls are not
good at sports’ / ‘All Arabs and Muslims are terrorists’.
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 Methods to Overcome Biases in Perception
The pitfalls listed above can be minimized by enhancing
perceptual skills by consciously putting effort in the
following activities:
1. Knowing and perceiving oneself accurately
2. Being empathic
3. Having positive attitudes
4. Enhancing one’s self-concept
5. Making a conscious effort to avoid the possible
common biases in perception
6. Open communication
7. Avoiding attributions 16
 Specific Applications of Shortcuts in
Organizations
1. Employment Interview: Interviewers generally draw early impressions
that are often inaccurate. In addition, different interviewers see different
things in the same candidate and thus arrive at different conclusions
about the applicant. Research shows most interviewer’s decisions change
very little after first 4 or 5 minutes of the interview. We form impressions
of others within a tenth of a second, based on our first glance.
2. Performance Expectations: The desired expectations of a person from
others (self-fulfilling prophecy).
i. Pygmalion effect: Higher expectations leads to increase in
performance.
ii. Golem effect: Lower expectations leads to decrease in performance.
3. Performance Evaluations: During the performance appraisal, the
managers are subjected to have influenced by various perceptual errors
particularly, halo effect, stereotyping, contrast effect etc. Though
subjective evaluation is necessary but is problematic as well.
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 Decision Making
• Decision-making is the thought process of
selecting a logical choice from the available
options.
• Decision making is the mental process of
selecting a course of action from a set of
alternatives.
• Decision-making involves the selection of a
course of action from among two or more
possible alternatives in order to arrive at a
solution for a given problem. 18
 Models of Decision Making
All decisions can be categorized into the following three
basic models:
1. The Rational Model: A precise, analytical process that
individuals use to come up with a fact-based decision.
2. Bounded Rationality Model: It is the idea that in
decision-making, rationality of individuals is limited by
the information they have, the cognitive limitations of
their minds, and the finite amount of time they have to
make a decision.
3. Intuitive Model: Describing something that is known,
perceived, understood or believed by instinct, feelings
or nature without actual evidence.
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 Rational Decision Making Model
Rational decision making model describes how individuals should
behave in order to maximize some outcome. The following are
the assumptions of the rational decision-making model:
1. Problem Clarity: The problem is clear and unambiguous.
2. Known Options: The decision-maker can identify all relevant
criteria and viable alternatives.
3. Clear Preferences: The criteria and alternatives can be ranked
and weighted.
4. Constant Preferences: Specific decision criteria are constant and
that the weights assigned to them are stable over time.
5. No Time or Cost Constraints: Full information is available
because there are no time or cost constraints.
6. Maximum Payoff: The choice alternative will yield the highest
perceived value.
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 …Rational Decision Making Model
There are six steps in the rational decision making
model:
1. Define the problem
2. Identify the decision criteria: Determining what
is relevant in making the decision.
3. Allocate weights to the criteria: Ranking which
criteria is the most important to the decision-
making process.
4. Develop the alternatives
5. Evaluate the alternatives
6. Select the best alternative 21
 Bounded Rationality
Bounded Rationality is the concept that decision makers
(irrespective of their level of intelligence) have to work
under three unavoidable constraints:
1. Only limited, often unreliable, information is available
regarding possible alternatives and their
consequences,
2. Human mind has only limited capacity to evaluate
and process the information that is available, and
3. Only a limited amount of time is available to make a
decision.
Therefore even individuals who intend to make rational
choices are bound to make satisfying (rather than
maximizing or optimizing) choices in complex situations.
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 Intuition
The least rational way of making decisions
is intuitive decision making.
 Intuition is an ability to understand or know
something immediately based on one’s
feelings rather than facts.
 Intuition is the ability to acquire knowledge
without proof, evidence, or conscious
reasoning, or without understanding how
the knowledge was acquired. 23
 Biases and Errors in Decision Making
1. Overconfidence Bias: Believing too much in our own ability
to make good decisions. Overestimate of performance and
ability.
2. Anchoring Bias: The common human tendency to rely too
heavily on the first piece of information offered when
making decisions. 
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 Commitment: Escalation of commitment
refers to staying with a decision even when there is a clear
evidence that it’s wrong. 24
 …Biases and Errors in Decision Making
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. Winner’s Curse: The winning participants in a competitive
auction typically pay too much for the item.
9. Hindsight Bias: The tendency people have to view events
as more predictable than they really are. After an event,
people often believe that they knew the outcome of the25
 Reducing Biases and Errors
1. Focus on Goals: Clear goals make decision making easier and
help you eliminate options that are inconsistent with your
interests.
2. Look for Information That Disconfirms Your Beliefs: One of the
most effective means for counteracting overconfidence and the
confirmation and hindsight biases is to actively look for
information that contradicts your beliefs and assumptions.
3. Don’t Try to Create Meaning out of Random Events: Ask yourself
if patterns can be meaningfully explained or whether they are
merely coincidence. Don’t attempt to create meaning out of
coincidence.
4. Increase Your Options: The more alternatives you can generate,
and the more diverse those alternatives, the greater your chance
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 Influences of Individual Differences on
Decision Making
1. Personality: Indecisive people find it difficult to
make decisions, whereas Impulsive people make
decisions quickly without considering all the
consequences.
2. Gender: Women spend much more time than men
analyzing the past, present, and future.
3. Mental ability: People with higher levels of mental
ability are able to make decisions quickly.
4. Cultural differences: Decision making by Japanese
managers is much more group-oriented than in the
United States. 27
 Influences of Organizational Constraints
on Decision Making
1. Performance Evaluation: Managers are strongly influenced
by the criteria on which they are evaluated.
2. Reward Systems: If the organization rewards risk aversion,
managers are more likely to make conservative decisions.
3. Formal Regulations: Organizations create rules and policies
to program decisions and get individuals to act in the
intended manner.
4. System-Imposed Time Constraints: Almost all important
decisions come with explicit deadlines which make it
difficult for managers to gather all the information they
might like before making a final choice.
5. Historical Precedents: Choices made today are largely a
result of choices made over the years. 28
 Ethics in Decision Making
Ethical considerations should be an important
criterion in organizational decision making.
• Three Ethical Decision Criteria:
1. Utilitarianism: A system in which decisions are
made to provide the greatest good for the
greatest number.
2. Rights: Respecting and protecting the basic
rights of individuals.
3. Justice: Imposing and enforcing rules fairly and
impartially. Equitable distribution of benefits
and costs. 29
 Improving Creativity in Decision Making
Creativity is the ability to produce novel and useful ideas. The
Three Component Model of Creativity proposes that individual
creativity essentially requires expertise, creative thinking skills,
and intrinsic task motivation. Studies confirm that the higher the
level of each, the higher the creativity.
1. Expertise: The potential for creativity is enhanced when
individuals have abilities, knowledge, proficiencies, and similar
expertise in their field of endeavor.
2. Creative-Thinking Skills: The personality characteristics
associated with creativity, the 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 of its characteristics such as interesting, involving,
exciting, satisfying and challenging. 30
 What Can Managers Do To Improve Their
Decision Making?
1. Analyze the situation: Managers have to adjust
their decision-making approach to the national
culture they are operating in and to the criteria
their organization evaluates and rewards.
2. Be aware of biases
3. Combine rational analysis with intuition: By
using both rational and intuitional analysis
managers can actually improve their decision-
making effectiveness.
4. Try to enhance creativity. 31
THE END

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