18-1

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Chapter 6: Perception and
Individual Decision Making

6-2

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 Learning Objectives
After studying this chapter, you should be able to:
Define perception and explain the factors that influence it.
Explain attribution theory, and list the three determinants
of attribution.
Identify the shortcuts individuals use in making judgments
about others.
Explain the link between perception and decision making.
Contrast the rational model of decision making with
bounded rationality and intuition.
Describe the common decision biases or errors.
Explain how individual differences and organizational
constraints affect decision making.
Contrast the three ethical decision criteria.
Define creativity and describe the three-stage model of 6-3
creativity.
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LO 1 Define Perception and Explain
The Factors That Influence It
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.

6-4

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 LO 1 Define Perception and Explain
The Factors That Influence It

Personal
characteristic

or the situation

Factors that shape and can distort perception include the perceiver, the target, or
the situation. When an individual looks at a target and attempts to interpret what
he or she sees, that interpretation is heavily influenced by the personal 6-5
characteristics of the individual perceiver. The more relevant personal
characteristics affecting the perceptions of the perceiver are attitudes, motives,
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interests, past experiences, and expectations.
LO 2 Explain
Attribution Theory and List
the Three Determinants of Attribution
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

6-6

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LO 2 Explain
Attribution Theory and List
the Three Determinants of Attribution
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.
the person is seen as having been forced into the
behavior by the situation.

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LO 2
Explain Attribution Theory and List
the Three Determinants of Attribution

Distinctiveness refers to whether an individual displays different behaviors in 6-8

different situations. Consensus occurs if everyone who is faced with a similar
situation responds in the same way. Finally, is there consistency in a person’s
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actions.
LO 2 Explain
Attribution Theory and List
the Three Determinants of Attribution
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
 Occurs when individuals attribute their own
successes to internal factors, such as ability or
effort, while putting the blame for failure on
external factors, such as luck.
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LO 3
Identify the Shortcuts Individuals
Use in Making Judgments About
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.
Halo effect
 The halo effect occurs when we draw a general
impression on the basis of a single characteristic.
 Research suggests that it is likely to be most extreme
when the traits to be perceived are ambiguous in
behavioral terms, when the traits have moral overtones,
and when the perceiver is judging traits with which he or
she has had limited experience.
6-10

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LO 3
Identify the Shortcuts Individuals
Use in Making Judgments About
Others
Contrast effects
 We do not evaluate a person in isolation.
 Our reaction to one person is influenced by other
persons we have recently encountered.
 For example, an interview situation in which one
sees a pool of job applicants can distort
perception.
Distortions in any given candidate’s evaluation
can occur as a result of his or her place in the 6-11
interview schedule.
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LO 3
Identify the Shortcuts Individuals
Use in Making Judgments About
Others
Stereotyping
 Judging someone on the basis of our perception
of the group to which he or she belongs.
 This is a means of simplifying a complex world,
and it permits us to maintain consistency.
We have to monitor ourselves to make sure
we’re not unfairly applying a stereotype in our
evaluations and decisions.
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LO 3
Identify the Shortcuts Individuals
Use in Making Judgments About
Others
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. 6-13

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LO 3
Identify the Shortcuts Individuals
Use in Making Judgments About
Others
Applications of Shortcuts in Organizations
 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. 6-14

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LO 3
Identify the Shortcuts Individuals
Use in Making Judgments About
Others
Applications of Shortcuts in Organizations
 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 4 Explain the Link Between
Perception and Decision Making
Individuals make decisions – choosing from two or
more alternatives.
 Top managers determine goals, products to
offer, how to finance operations, or locate a new
plant.
 Middle- and lower-level managers determine
production schedules, select employees, and
decide about pay raises.
 Some non-managerial employees are now also
empowered to make decisions that have been
previously made by managers. 6-16

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LO 4 Explain the Link Between
Perception and Decision Making
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.
 Every decision requires interpretation and evaluation
of information.
Data are typically received from multiple sources.
Which data are relevant to the decision and which are
not?
 Alternatives will be developed, and the strengths and
6-17
weaknesses of each need to be evaluated.
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LO 5Contrast
the Rational Model of Decision
Making with Bounded Rationality and
Intuition

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LO 5Contrast
the Rational Model of Decision
Making with Bounded Rationality and
Intuition
Assumptions of the Rational Model
 The rational decision-making model assumes the decision maker has
complete information, is able to identify all the relevant options in an
unbiased manner, and chooses the option with the highest utility.

 Most decisions in the real world don’t follow the rational model. People
are usually content to find an acceptable or reasonable solution to a
problem rather than an optimal one. Choices tend to be limited to the
neighborhood of the problem symptom and the current alternative.
 As one expert in decision making put it, “Most significant decisions are
made by judgment, rather than by a defined prescriptive model.” People
are remarkably unaware of making suboptimal decisions.
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LO 5Contrast
the Rational Model of Decision
Making with 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. 6-20

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LO 5Contrast
the Rational Model of Decision
Making with 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.
These are easy to find, tend to be highly visible,
and represent familiar criteria and previously tried-
and-true solutions.
 The decision maker then reviews the list, looking for
a solution that is “good enough.”
 Sometimes a fast-and-frugal process of solving
problems is the best option. 6-21

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LO 5Contrast
the Rational Model of Decision
Making with 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 6 Describe the Common Decision Biases or
Errors

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Let’s now take a look at the specific types of biases and errors that can occur in
the decision making process.
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LO 6 Describe the Common
Decision Biases or Errors
Overconfidence Bias
 Individuals whose intellectual and interpersonal abilities are
weakest are most likely to overestimate their performance
and ability. Investor overconfidence operates in a variety of
ways. People think they know more than they do, and it
costs them. Investors, especially novices, overestimate not
just their own skill in processing information, but also the
quality of the information with which they’re working.
Anchoring Bias
 Fixating on initial information as a starting point and failing
to adequately adjust for subsequent information. Anchors
are widely used by people in advertising, management,
politics, real estate, and law, where persuasion skills are
important. Any time a negotiation takes place, so does 6-24
anchoring.
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LO 6 Describe the Common
Decision Biases or Errors
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 6 Describe the Common
Decision Biases or Errors
Escalation of Commitment
 Staying with a decision even when there is clear
evidence that it’s wrong.
Escalation is most 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
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to create meaning out of random events.
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LO 6 Describe the Common
Decision Biases or Errors
Risk Aversion
 The tendency to prefer a sure thing instead of a risky outcome.
Ambitious people with power that can be taken away (i.e.,
most managers) appear to be especially risk averse, perhaps
because they don’t want to lose everything they’ve worked
so hard to achieve.
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. Hindsight bias reduces our ability to learn from
the past. 6-27

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LO 7 Explain How Individual Differences and
Organizational Constraints Affect Decision

Making
Individual Differences
 Personality
 Conscientiousness
 Achievement–striving people are more likely to escalate their commitment (hate to
fail)
 Dutifulness-people are less likely to do so.
 High self-esteem
 Gender
 Rumination-reflecting at length w/m
 Mental Ability-We know people with higher levels of mental ability are able to
process information more quickly, solve problems more accurately, and learn
faster, so you might expect them also to be less susceptible to common
decision errors.
 Cultural Differences-is important to recognize that the cultural background of
a decision maker can significantly influence the selection of problems, the
depth of analysis, the importance placed on logic and rationality, and whether
organizational decisions should be made autocratically by an individual
manager or collectively in groups
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 Explain How Individual Differences and
LO 7
Organizational Constraints Affect Decision

Making
Organizational Constraints-Managers are strongly influenced in
their decision making by the criteria by which they are evaluated (Payoff)
 Performance Evaluations
 Reward Systems
 Formal Regulations
 System-Imposed Time Constraints-organizations
impose deadlines
 Historical Precedents-Decisions made in the past
are ghosts, which continually haunt current
choices.
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LO 8
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. 6-30

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LO 8
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
disseminated by their organizations, and we
sometimes violate our own standards.
 There are ways to increase ethical decision
making in organizations.
 Consider cultural differences. What is ethical in
one culture may be unethical in another. Without
sensitivity to cultural differences in defining
ethical conduct, organizations may encourage
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unethical conduct without even knowing it.
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LO 9
Define Creativity and 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 9
Define Creativity and Describe
the Three-Stage Model of Creativity
It is also valuable to
work in an
environment that
rewards and
recognizes creative
work

. A study of health care

teams found that team
The potential for creativity is enhanced creativity translated6-33
into
when individuals have abilities, knowledge, innovation only when the
proficiencies, and similar expertise to their climate actively
field of endeavor. supported innovation.
 Implications for Managers
To influence productivity, assess how your employees
perceive their jobs. Clue into employee absenteeism,
turnover, and job satisfaction levels for indicators of their
perception. Discuss their perceptions about fairness,
compensation, and other abstract measures with them to
clear up any perceptual distortions.
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 6-34
to ensure compatibility with the organizational culture.
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 Implications for Managers
Be aware of biases. Then try to minimize their impact.
Exhibit 6-4 offers some suggestions.
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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