Chapter 5 Perception and Individual Decision Making

Organizational Behavior Chapter 5 Perception and Individual Decision Making Learning Objectives 5.1 Explain the factors that influence perception. 5.2 Describe attribution theory. 5.3 Explain the link between perception and decision making. 5.4 Contrast the rational model of decision making with bounded rationality and intuition. 5.5 Explain how individual differences and organizational constraints affect decision making. 5.6 Contrast the three ethical decision criteria. 5.7 Describe the three-stage model of creativity. Explain the Factors That Influence Perception (1 of 2) • Perception is a process by which individuals organize and interpret their sensory impressions 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. Explain the Factors That Influence Perception (2 of 2) Exhibit 6-1 Factors That Influence Perception Explain Attribution Theory (1 of 10) • 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 Explain Attribution Theory (2 of 10) • 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. Explain Attribution Theory (3 of 10) Exhibit 6-2 Attribution Theory Explain Attribution Theory (4 of 10) • 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. Explain Attribution Theory (5 of 10) • 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. Explain Attribution Theory (6 of 10) • Halo effect – The halo effect occurs when we draw a general impression based on 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. Explain Attribution Theory (7 of 10) • Stereotyping – Judging someone based on one’s perception of the group to which that person belongs.  We have to monitor ourselves to make sure we’re not unfairly applying a stereotype in our evaluations and decisions. Explain Attribution Theory (8 of 10) • 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. Explain Attribution Theory (9 of 10) • 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. Explain Attribution Theory (10 of 10) • 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. 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. Rational Model of Decision Making vs. Bounded Rationality and Intuition (1 of 12) Exhibit 6-3 Steps in the Rational Decision-Making Model 1. Define the problem. 2. Identify the decision criteria. 3. Allocate weights to the criteria. 4. Develop the alternatives. 5. Evaluate the alternatives. 6. Select the best alternative. Rational Model of Decision Making vs. Bounded Rationality and Intuition (2 of 12) • 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. Rational Model of Decision Making vs. Bounded Rationality and Intuition (3 of 12) • 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. Rational Model of Decision Making vs. Bounded Rationality and Intuition (4 of 12) • 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.” Rational Model of Decision Making vs. Bounded Rationality and Intuition (5 of 12) • 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. Rational Model of Decision Making vs. Bounded Rationality and Intuition (6 of 12) Exhibit 6-4 Reducing Biases and Errors Focus on Goals. Without goals, you can’t be rational, you don’t know what information you need, you don’t know which information is relevant and which is irrelevant, you’ll find it difficult to choose between alternatives, and you’re far more likely to experience regret over the choices you make. Clear goals make decision making easier and help you eliminate options that are inconsistent with your interests. Rational Model of Decision Making vs. Bounded Rationality and Intuition (7 of 12) [Exhibit 6-4 Continued] 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. When we overtly consider various ways we could be wrong, we challenge our tendencies to think we’re smarter than we actually are. Don’t Try to Create Meaning out of Random Events. The educated mind has been trained to look for cause-and-effect relationships. When something happens, we ask why. And when we can’t find reasons, we often invent them. You have to accept that there are events in life that are outside your control. Ask yourself if patterns can be meaningfully explained or whether they are merely coincidence. Don’t attempt to create meaning out of coincidence. Rational Model of Decision Making vs. Bounded Rationality and Intuition (8 of 12) [Exhibit 6-4 Continued] Increase Your Options. No matter how many options you’ve identified, your final choice can be no better than the best of the option set you’ve selected. This argues for increasing your decision alternatives and for using creativity in developing a wide range of diverse choices. The more alternatives you can generate, and the more diverse those alternatives, the greater your chance of finding an outstanding one. Rational Model of Decision Making vs. Bounded Rationality and Intuition (9 of 12) • 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. Rational Model of Decision Making vs. Bounded Rationality and Intuition (10 of 12) • 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. Rational Model of Decision Making vs. Bounded Rationality and Intuition (11 of 12) • 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. Rational Model of Decision Making vs. Bounded Rationality and Intuition (12 of 12) • 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. Individual Differences, Organizational Constraints, and Decision Making (1 of 2) • Individual Differences – Personality  Conscientiousness  High self-esteem – Gender  Rumination – Mental Ability – Cultural Differences Individual Differences, Organizational Constraints, and Decision Making (2 of 2) • Organizational Constraints – Performance Evaluation Systems – Reward Systems – Formal Regulations – System-Imposed Time Constraints – Historical Precedents Contrast the Three Ethical Decision Criteria (1 of 3) • 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. Contrast the Three Ethical Decision Criteria (2 of 3) • Behavioral ethics: an area of study that analyzes how people 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. Contrast the Three Ethical Decision Criteria (3 of 3) • 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. Describe the Three-Stage Model of Creativity (1 of 2) • 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. Describe the Three-Stage Model of Creativity (2 of 2) Exhibit 6-5 Three-Stage Model of Creativity in Organizations Implications for Managers (1 of 3) • 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. Implications for Managers (2 of 3) • 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. Implications for Managers (3 of 3) • Combine rational analysis with intuition. These are not conflicting approaches to decision making. By using both, you can 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.