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CHAPTER 6
Perception and Individual
Decision Making
LEARNING OBJECTIVES
After studying this chapter, your students should be able to:
6-1. Explain the factors that influence perception.
6-2. Describe attribution theory.
6-3. Explain the link between perception and decision making.
6-4. Contrast the rational model of decision making with bounded rationality and intuition.
6-5. Explain how individual differences and organizational constraints affect decision
making.
6-6. Contrast the three ethical decision criteria.
6-7. Describe the three-stage model of creativity.
INSTRUCTOR RESOURCES
Instructors may wish to use the following resources when presenting this chapter.
Text Exercises
Career OBjectives: So What If I’m A Few Minutes Late to Work?
Myth or Science?: “All Stereotypes Are Negative”
An Ethical Choice: Choosing to Lie
Personal Inventory Assessments: How Creative Are You?
Point/Counterpoint: Stereotypes Are Dying
Questions for Review
Experiential Exercise: Good Liars and Bad Liars
Ethical Dilemma: Cheating Is A Decision
Text Cases
Case Incident 1: Too Much Of A Good Thing
Case Incident 2: The Youngest Billionaire
Instructor’s Choice
This section presents an exercise that is NOT found in the student's textbook. Instructor's Choice
reinforces the text's emphasis through various activities. Some Instructor's Choice activities are
centered on debates, group exercises, Internet research, and student experiences. Some can be
used in class in their entirety, while others require some additional work on the student's part.
The course instructor may choose to use these at any time throughout the class—some may be
more effective as icebreakers, while some may be used to pull together various concepts covered
in the chapter.
Web Exercises
At the end of each chapter of this Instructor’s Manual, you will find suggested exercises and
ideas for researching OB topics on the Internet. The exercises “Exploring OB Topics on the
Web” are set up so that you can simply photocopy the pages, distribute them to your class, and
make assignments accordingly. You may want to assign the exercises as an out-of-class activity
or as lab activities with your class.
Summary and Implications for Managers
Individuals base their behavior not on the way their external environment actually is, but rather
on the way they see it or believe it to be. An understanding of the way people make decisions
can help us explain and predict behavior, but few important decisions are simple or unambiguous
enough for the rational model’s assumptions to apply. We find individuals looking for solutions
that satisfice rather than optimize, injecting biases and prejudices into the decision process, and
relying on intuition. Managers should encourage creativity in employees and teams to create a
route to innovative decision making.
Specific implications for managers are below:
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.
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.
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.
This chapter begins with an introduction to Palmer Luckey, inventor of the Oculus Rift virtual reality headset. The
case illustrates how important—and perhaps rare—an individual’s creativity can be to an industry. As we will see
later in the chapter, the creativity of individuals can lead to breakthroughs in innovation. To better understand what
influences us and our organizations, we start at the roots of our thought processes: our perceptions and the way they
affect our decision making.
BRIEF CHAPTER OUTLINE
I. What Is Perception?
A. Perception is a process by which individuals organize and interpret their sensory
impressions in order to give meaning to their environment.
B. Why is this important to the study of OB?
1. Because people’s behavior is based on their perception of what reality is, not on
reality itself.
II. Factors That Influence Perception (Exhibit 6-1)
A. Factors that shape and can distort perception:
1. Perceiver
2. Target
3. Situation
B. When an individual looks at a target and attempts to interpret what he or she sees, that
interpretation is heavily influenced by personal characteristics of the individual perceiver.
C. Characteristics of the target also affect what we perceive.
D. Context matters too.
III. Person Perception: Making Judgments about Others
A. Attribution Theory (Exhibit 6-2)
1. Attribution theory suggests that 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:
a. Distinctiveness
b. Consensus
c. Consistency
2. Clarification of the differences between internal and external causation:
a. Internally caused behaviors are those that are believed to be under the personal
control of the individual.
b. Externally caused behavior is what we imagine the situation forced the individual
to do.
3. Three determining factors:
a. Distinctiveness refers to whether an individual displays different behaviors in
different situations.
b. Consensus occurs if everyone who is faced with a similar situation responds in the
same way.
c. Consistency in a person’s actions.
4. Fundamental attribution error
a. There is substantial evidence that we have a tendency to underestimate the
influence of external factors and overestimate the influence of internal or personal
factors.
5. Self-serving bias
a. There is also a tendency for individuals to attribute their own successes to internal
factors, such as ability or effort, while putting the blame for failure on external
factors, such as luck.
6. Cultural differences
a. The evidence on cultural differences in perception is mixed, but most suggest
there are differences across cultures in the attributions people make.
B. Common Shortcuts in Judging Others
1. The shortcuts for judging others often allow us to make accurate perceptions rapidly
and provide valid data for making predictions.
2. However, they can and do sometimes result in significant distortions.
3. Selective perception
a. Any characteristic that makes a person, object, or event stand out will increase the
probability that it will be perceived.
b. Since we can’t observe everything going on about us, we engage in selective
perception.
4. Halo effect
a. The halo effect occurs when we draw a general impression on the basis of a
single characteristic.
5. Contrast effects
a. We do not evaluate a person in isolation. Our reaction to one person is influenced
by other persons we have recently encountered.
b. Contrast effect can distort perception.
i. For example, an interview situation in which one sees a pool of job applicants
can distort perception.
6. Stereotyping
a. Stereotyping—judging someone on the basis of our perception of the group to
which he or she belongs.
b. One problem of stereotypes is that they are widespread generalizations, though
they may not contain a shred of truth when applied to a particular person or
situation.
C. Specific Applications of Shortcuts in Organizations
1. Employment interview
a. Evidence indicates that interviewers make perceptual judgments that are often
inaccurate.
b. Interviewers generally draw early impressions that become very quickly
entrenched.
c. Studies indicate that most interviewers’ decisions change very little after the first
four or five minutes of the interview.
D. Performance Expectations
1. Evidence demonstrates that people will attempt to validate their perceptions of reality,
even when those perceptions are faulty.
2. Self-fulfilling prophecy, or the Pygmalion effect, characterizes the fact that people’s
expectations determine their behavior. Expectations become reality.
E. Performance Evaluation
1. An employee’s performance appraisal is very much dependent on the perceptual
process.
2. Although the appraisal can be objective, many jobs are evaluated in subjective terms.
3. Subjective measures are problematic because of selective perception, contrast effects,
halo effects, and so on.
IV. The Link Between Perception and Individual Decision Making
A. Individuals in organizations make decisions; they make choices from among two or more
options.
1. A discrepancy between the current state of affairs and some desired state.
B. Every decision requires interpretation and evaluation of information.
C. The perceptions of the decision maker will address these two issues.
V. Decision Making in Organizations
A. The Rational Model, Bounded Rationality, and Intuition
1. Introduction
a. In OB, there are generally accepted constructs of decision making that each of us
employs to make determinations: rational decision making, bounded rationality,
and intuition.
b. There are times when one strategy may lead to a better outcome than another in a
given situation.
2. Rational decision making
a. We often think the best decision maker is rational and makes consistent,
value-maximizing choices within specified constraints.
b. These decisions follow a six-step rational decision making model listed in
Exhibit 6-3
i. Step 1: Define the problem.
ii. Step 2: Identify the decision criteria.
iii. Step 3: Allocate weights to the criteria.
iv. Step 4: Develop the alternatives.
v. Step 5: Evaluate the alternatives.
vi. Step 6: Select the best alternative.
c. The rational decision-making model assumes that 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.
d. Most decisions in the real world don’t follow the rational model.
B. Bounded Rationality
1. When faced with a complex problem, most people respond by reducing the problem
to a level at which it can be readily understood.
a. People satisfice—they seek solutions that are satisfactory and sufficient.
2. Individuals operate within the confines of bounded rationality. They construct
simplified models that extract the essential features.
3. How does bounded rationality work?
a. Once a problem is identified, the search for criteria and options begins.
b. The decision maker will identify a limited list made up of the more conspicuous
choices, which are easy to find and tend to be highly visible, and they will
represent familiar criteria and previously tried-and-true solutions.
c. Once this limited set of options is identified, the decision maker will begin
reviewing it until we identify one that is “good enough” – that meets an
acceptable level of performance.
i. Thus ends our search. Therefore, the solution represents a satisficing choice
—the first acceptable one we encounter—rather than an optimal one.
d. To use the rational model in the real world, you need to gather a great deal of
information about all the options, compute applicable weights, and then calculate
values across a huge number of criteria.
C. Intuition
1. Perhaps the least rational way of making decisions is intuitive decision making, an
unconscious process created from distilled experience.
2. It 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.
3. While intuition isn’t rational, it isn’t necessarily wrong.
4. Nor does it always contradict rational analysis; rather, the two can complement each
other.
5. The key is to neither abandon nor rely solely on intuition, but to supplement it with
evidence and good judgment.
VI. Common Biases and Errors in Decision Making
A. Introduction (Exhibit 6-4)
1. Decision makers allow systematic biases and errors to creep into their judgments.
2. People tend to rely on experience, impulses, gut feelings, and rules of thumb. These
can lead to distortions.
B. Overconfidence Bias
1. Individuals whose intellectual and interpersonal abilities are weakest are most likely
to overestimate their performance and ability.
2. The tendency to be too confident about their ideas might keep some from planning
how to avoid problems that arise.
3. Investor overconfidence operates in a variety of ways.
a. People think they know more than they do, and it costs them.
b. Investors, especially novices, overestimate not just their own skill in processing
information, but also the quality of the information they’re working with.
C. Anchoring Bias
1. Anchoring bias involves fixating on initial information as a starting point and failing
to adequately adjust for subsequent information.
2. Anchors are widely used by people in advertising, management, politics, real estate,
and lawyers – where persuasion skills are important.
3. Any time a negotiation takes place, so does anchoring.
D. Confirmation Bias
1. Confirmation bias is a type of selective perception: we seek out information that
reaffirms past choices, and discount information that contradicts past judgments.
E. Availability Bias
1. Availability bias is the tendency for people to base judgments on information that is
readily available.
F. Escalation of Commitment
1. Escalation of commitment occurs when we stay with a decision even when there is
clear evidence that it’s wrong.
2. When is escalation most likely to occur?
a. Evidence indicates it occurs when individuals view themselves as responsible for
the outcome.
G. Randomness Error
1. Decision making becomes impaired when we try to create meaning out of random
events.
2. Our tendency to believe we can predict the outcome of random events is the
randomness error.
H. Risk Aversion
1. The tendency to prefer a sure thing instead of a risky outcome is risk aversion.
2. Risk aversion has important implications.
a. Risk-averse employees will stick with the established way of doing their jobs,
rather than taking a chance on innovative methods.
b. Ambitious people with power that can be taken away (most managers) appear to
be especially risk averse, perhaps because they don’t want to lose on a gamble
everything they’ve worked so hard to achieve.
3. People will more likely engage in risk-seeking behavior for negative outcomes, and
risk-averse behavior for positive outcomes, when under stress.
I. Hindsight Bias
a. Hindsight bias is the tendency to believe, falsely, that one has accurately
predicted the outcome of an event, after that outcome is actually known.
b. The hindsight bias reduces our ability to learn from the past.
VII. Influences on Decision Making: Individual Differences and Organizational Constraints
A. Individual Differences
1. Personality influences our decisions.
a. Specific facets of conscientiousness—rather than the broad trait itself—may affect
escalation of commitment.
i Achievement-striving
ii Dutifulness
b. People with high self-esteem are strongly motivated to maintain it, so they use the
self-serving bias to preserve it.
2. Gender
a. Rumination refers to reflecting at length. In decision making, it means
over-thinking about problems.
b. Evidence indicates that women analyze decisions more than men.
3. Mental ability
a. 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.
4. Cultural differences
a. The rational model makes no acknowledgment of cultural differences, nor does
the bulk of OB research literature on decision making.
b. We need 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.
c. Cultures differ in their time orientation, the importance of rationality, their belief
in the ability of people to solve problems, and their preference for collective
decision making.
d. While rationality is valued in North America, that’s not true elsewhere in the
world.
e. Some cultures emphasize solving problems, while others focus on accepting
situations as they are.
f. Because problem-solving managers believe they can and should change situations
to their benefit, U.S. managers might identify a problem long before their Thai or
Indonesian counterparts would choose to recognize it.
g. Decision making by Japanese managers is much more group-oriented than in the
United States.
5. Nudging
a. Commercials are one of the most outright forms of an organization’s attempt to
influence our perceptions of a product and our decision to acquire that product.
b. Nudging has also been used positively in the development of corporate social
responsibility (CSR) initiatives to change people’s expectations for organizations.
c. People differ in their susceptibility to suggestion, but it is probably fair to say we
are all receptive to nudging to some degree.
B. Organizational Constraints
1. Introduction
a. The organization itself constrains decision makers, creating deviations from the
rational model.
2. Performance evaluation systems
a. Managers are strongly influenced in their decision making by the criteria by
which they are evaluated.
3. Reward systems
a. The organization’s reward system influences decision makers by suggesting to
them what choices are preferable in terms of personal payoff.
4. Formal regulations
a. Organizations create rules, policies, procedures, and other formalized regulations
to standardize the behavior of their members.
5. System-imposed time constraints
a. Organizations impose deadlines on decisions.
b. Such conditions often make it difficult, if not impossible, for managers to gather
all the information before making a final choice.
6. Historical precedents
a. Decisions have a context. Individual decisions are more accurately characterized
as points in a stream of decisions.
b. Decisions made in the past are ghosts that continually haunt current choices. It is
common knowledge that the largest determining factor of the size of any given
year’s budget is last year’s budget.
VIII. What about Ethics in Decision Making?
A. Introduction
1. Ethical considerations should be an important criterion in organizational decision
making.
B. Three Ethical Decision Criteria
1. Utilitarianism—decisions are made solely on the basis of their outcomes or
consequences.
2. 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.
a. This criterion protects whistleblowers when they reveal an organization’s
unethical practices to the press or government agencies, using their right to free
speech.
3. A third criterion is to impose and enforce rules fairly and impartially to ensure justice
or an equitable distribution of benefits and costs.
a. Union members typically favor this view.
4. Each criterion has advantages and liabilities.
a. A focus on utilitarianism promotes efficiency and productivity, but it can sideline
the rights of some individuals, particularly those with minority representation.
b. The use of rights protects individuals from injury and is consistent with freedom
and privacy, but it can create a legalistic environment that hinders productivity
and efficiency.
c. A focus on justice protects the interests of the underrepresented and less powerful,
but it can encourage a sense of entitlement that reduces risk taking, innovation,
and productivity.
5. Increasingly, researchers are turning to behavioral ethics – an area of study that
analyzes how people actually behave when confronted with ethical dilemmas.
a. Their research tells us that while ethical standards exist collectively (society and
organizations) and individually (personal ethics), individuals do not always follow
ethical standards promulgated by their organizations, and we sometimes violate
our own standards.
6. How might we increase ethical decision making in organizations?
a. First, sociologist James Q. Wilson promulgated the broken windows theory—the
idea that decayed and disorderly urban environments may facilitate criminal
behavior because they signal antisocial norms.
b. Second, managers should encourage conversations about moral issues; they may
serve as a reminder and increase ethical decision making.
c. Finally, we should be aware of our own moral “blind spots”—the tendency to see
ourselves as more moral than we are, and others as less moral than they are.
7. Behavioral ethics research stresses the importance of culture to ethical decision
making.
a. There are few global ethical standards, as contrasts between Asia and the West
illustrate.
b. What is ethical in one culture may be unethical in another.
c. Without sensitivity to cultural differences in defining ethical conduct,
organizations may encourage unethical conduct without even knowing it.
8. Lying
a. Lying is one of the top unethical activities we may indulge in daily, and it
undermines all efforts toward sound decision making.
b. Lying is deadly to decision making, whether we sense the lies or not.
i. Managers—and organizations—simply cannot make good decisions when
facts are misrepresented and people give false motives for their behaviors.
c. Lying is a big ethical problem as well.
IX. Creativity, Creative Decision Making, and Innovation in Organizations
A. Introduction
1. Definition: 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.
2. The three-stage model of creativity shown in Exhibit 6-5 suggests that creativity
involves causes (creative potential and creative environment), creative behavior, and
creative outcomes (innovation).
B. Creative Behavior
1. Creative behavior occurs in four steps, each of which leads to the next:
a. Problem formulation: any act of creativity begins with a problem that the
behavior is designed to solve.
i. Problem formulation: the stage of creative behavior in which we identify a
problem or opportunity that requires a solution as yet unknown.
b. Information gathering: given a problem, the solution is rarely directly at hand.
We need time to learn more and to process that learning.
i. Information gathering: the stage of creative behavior when possible
solutions to a problem incubate in an individual’s mind.
