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6
Perception and
Individual
Decision Making

Copyright © 2017 Pearson Education, Ltd.

 Learning Objectives
 Explain the factors that influence perception. 
 Describe attribution theory.
 Explain the link between perception and decision
making.
 Contrast the rational model of decision making
with bounded rationality and intuition.
 Explain how individual differences and
organizational constraints affect decision making.
 Contrast the three ethical decision criteria.
 Describe the three-stage model of creativity.

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LO 1 Explain the Factors That
Influence Perception 
Perception is a process by which individuals
organize and interpret their sensory
impressions in order to give meaning to their
environment.
It is important to the study of OB because
people’s behaviors are based on their
perception of what reality is, not on reality itself.

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LO 1 Explain the Factors That
Influence Perception

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 Explain Attribution Theory
LO 2

Attribution theory suggests that when we

observe an individual’s behavior, we attempt to
determine whether it was internally or
externally caused.
Determination depends on three factors:
 Distinctiveness
 Consensus
 Consistency

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 Explain Attribution Theory
LO 2

Clarification of the differences between

internal and external causation
 Internally caused – those that are
believed to be under the personal control of
the individual.
 Externally caused – resulting from outside
causes.

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 Explain Attribution Theory
LO 2

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 Explain Attribution Theory
LO 2

Fundamental attribution error

 We have a tendency to underestimate the
influence of external factors and
overestimate the influence of internal or
personal factors.
Self-serving bias
 Individuals attribute their own successes to
internal factors.

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 Explain Attribution Theory
LO 2

Common Shortcuts in Judging Others

 Selective perception
Any characteristic that makes a person,
object, or event stand out will increase the
probability that it will be perceived.
Since we can’t observe everything going on
around us, we engage in selective
perception.

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 Explain Attribution Theory
LO 2

Halo effect
 The halo effect occurs when we draw a
general impression on the basis of a single
characteristic.
Contrast effects
 We do not evaluate a person in isolation.
 Our reaction to one person is influenced by
other persons we have recently
encountered.

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 Explain Attribution Theory
LO 2

Stereotyping
 Judging someone on the basis of our
perception of the group to which he or she
belongs.
 We have to monitor ourselves to make
sure we’re not unfairly applying a
stereotype in our evaluations and
decisions.

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 Explain Attribution Theory
LO 2

Applications of Shortcuts in Organizations

 Employment Interview
Evidence indicates that interviewers make
perceptual judgments that are often
inaccurate.
Interviewers generally draw early impressions
that become very quickly entrenched.
Studies indicate that most interviewers’
decisions change very little after the first four
or five minutes of the interview.

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LO 2

Explain Attribution Theory

Performance Expectations
 Evidence demonstrates that people will
attempt to validate their perceptions of
reality, even when those perceptions are
faulty.
Self-fulfilling prophecy, or the Pygmalion
effect, characterizes the fact that people’s
expectations determine their behavior.
Expectations become reality.

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 Explain Attribution Theory
LO 2

Performance Evaluation
 An employee’s performance appraisal is
very much dependent upon the perceptual
process.
Many jobs are evaluated in subjective
terms.
Subjective measures are problematic
because of selective perception, contrast
effects, halo effects, and so on.

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LO 3
Explain the Link Between
Perception and Decision Making
Individuals make decisions – choosing from
two or more alternatives.
Decision making occurs as a reaction to a
problem.
 There is a discrepancy between some
current state of affairs and some desired
state, requiring consideration of alternative
courses of action.
One person’s problem is another’s
satisfactory state of affairs.
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LO 4
Rational Model of Decision Making vs.
Bounded Rationality and Intuition

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LO 4
Rational Model of Decision Making vs.
Bounded Rationality and Intuition
Assumptions of the Rational Model
 The decision maker…
Has complete information.
Is able to identify all the relevant options in
an unbiased manner.
Chooses the option with the highest utility.
Most decisions in the real world don’t follow
the rational model.

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LO 4 Rational Model of Decision Making vs.
Bounded Rationality and Intuition
Bounded Rationality
 Most people respond to a complex problem
by reducing it to a level at which it can be
readily understood.
People satisfice – they seek solutions that
are satisfactory and sufficient.
 Individuals operate within the confines of
bounded rationality.
They construct simplified models that
extract the essential features.
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LO 4 Rational Model of Decision Making vs.
Bounded Rationality and Intuition
How does bounded rationality work?
 Once a problem is identified, the search for
criteria and options begins.
A limited list of the more conspicuous
choices is identified.
 The decision maker then reviews the list,
looking for a solution that is “good
enough.”

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LO 4
Rational Model of Decision Making vs.
Bounded Rationality and Intuition
Intuition
 Intuitive decision making occurs outside
conscious thought; it relies on holistic
associations, or links between disparate
pieces of information, is fast, and is
affectively charged, meaning it usually
engages the emotions.
 The key is neither to abandon nor rely solely
on intuition, but to supplement it with
evidence and good judgment.
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LO 4
Rational Model of Decision Making vs.
Bounded Rationality and Intuition

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LO 4
Rational Model of Decision Making vs.
Bounded Rationality and Intuition
Common Biases and Errors in Decision Making
 Overconfidence Bias: individuals whose
intellectual and interpersonal abilities are
weakest are most likely to overestimate their
performance and ability.
 Anchoring Bias: fixating on initial
information as a starting point and failing to
adequately adjust for subsequent
information.

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LO 4
Rational Model of Decision Making vs.
Bounded Rationality and Intuition
Confirmation Bias: type of selective
perception.
 Seek out information that reaffirms past
choices, and discount information that
contradicts past judgments.
Availability Bias: tendency for people to base
judgments on information that is readily
available.

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LO 4 Rational Model of Decision Making vs.
Bounded Rationality and Intuition
Escalation of Commitment: staying with a
decision even when there is clear evidence that
it’s wrong.
Likely to occur when individuals view
themselves as responsible for the outcome.
Randomness Error: our tendency to believe we
can predict the outcome of random events.
 Decision making becomes impaired when
we try to create meaning out of random
events.

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LO 4
Rational Model of Decision Making vs.
Bounded Rationality and Intuition
Risk Aversion: the tendency to prefer a sure thing
instead of a risky outcome. 
Ambitious people with power that can be taken
away appear to be especially risk averse.
People will more likely engage in risk-seeking
behavior for negative outcomes, and risk-
averse behavior for positive outcomes, when
under stress. 
Hindsight Bias: the tendency to believe falsely
that one has accurately predicted the outcome of
an event, after that outcome is actually known.
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LO 5
Individual Differences, Organizational
Constraints, and Decision Making
Individual Differences
 Personality
Conscientiousness
High self-esteem
 Gender
Rumination
 Mental Ability
 Cultural Differences
 Nudging
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LO 5 Individual Differences, Organizational
Constraints, and Decision Making

Organizational Constraints
 Performance Evaluation Systems
 Reward Systems
 Formal Regulations
 System-Imposed Time Constraints
 Historical Precedents

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LO 6
Contrast the Three
Ethical Decision Criteria
 Utilitarianism: decisions are made solely on
the basis of their outcomes or consequences.
 Focus on rights: calls on individuals to make
decisions consistent with fundamental liberties
and privileges as set forth in documents such
as the Bill of Rights.
 Protects whistle-blowers.
Impose and enforce rules fairly and impartially
to ensure justice or an equitable distribution of
benefits and costs.
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LO 6
Contrast the Three
Ethical Decision Criteria
Behavioral ethics: an area of study that
analyzes how people actually behave when
confronted with ethical dilemmas.
 Individuals do not always follow ethical
standards promulgated by their
organizations, and we sometimes violate
our own standards.
 There are ways to increase ethical decision
making in organizations.
 Consider cultural differences.
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LO 6
Contrast the Three
Ethical Decision Criteria
Lying
One of the top unethical activities we may
indulge in daily.
It undermines all efforts toward sound decision
making.
Managers—and organizations—simply cannot
make good decisions when facts are
misrepresented and people give false motives
for their behaviors.
Lying is a big ethical problem as well.
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LO 7
Describe the Three-Stage
Model of Creativity
Creativity is the ability to produce novel and
useful ideas.
 These are ideas that are different from what
has been done before, but that are also
appropriate to the problem.

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LO 7 Describe the Three-Stage
Model of Creativity

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 Implications for Managers
Behavior follows perception, so to influence
behavior at work, assess how people perceive
their work. Often behaviors we find puzzling
can be explained by understanding the
initiating perceptions.
Make better decisions by recognizing
perceptual biases and decision-making errors
we tend to commit. Learning about these
problems doesn’t always prevent us from
making mistakes, but it does help.
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 Implications for Managers
Adjust your decision-making approach to the
national culture you’re operating in and to the
criteria your organization values. If you’re in a
country that doesn’t value rationality, don’t feel
compelled to follow the rational decision-
making model or to try to make your decisions
appear rational. Adjust your decision approach
to ensure compatibility with the organizational
culture.

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 Implications for Managers
Combine rational analysis with intuition. These
are not conflicting approaches to decision
making. By using both, you can actually
improve your decision making effectiveness.
Try to enhance your creativity. Actively look for
novel solutions to problems, attempt to see
problems in new ways, use analogies, and
hire creative talent. Try to remove work and
organizational barriers that might impede your
creativity.
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