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Chapter 6 Perception & Individual Decision Making


Definition of Perception: A process by which individuals organize and

interpret their sensory impressions in order to give meaning to

their environment
Peoples behavior is based on their perception of what reality is, not on

reality itself
The world as it is perceived is the world that is behaviorally important

Factors that influence Perception

Perceiver: Attitudes, motives, interests experiences, expectations

Situation: Time, work setting, social setting
Target: novelty, motion, sounds, size, background, proximity, similarity

Attribution Theory Judging others

Our perception and judgment of others is significantly influenced by

our assumptions of the other persons internal state.

When individuals observe behavior, they attempt to determine whether

it is internally or externally caused.

Causation judged through:
o Distinctiveness - Shows different behaviors in different
o Consensus - Response is the same as others to same situation.
o Consistency Responds in the same way over time.

Errors and Biases in Attributions

Fundamental Attribution Error - 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
- tendency for individuals to attribute their own successes to internal
factors while putting the blame for failures on external factors
o It is our success but their failure

Mental Shortcuts - Individuals

Selective Perception
o People selectively interpret what they see on the basis of their
interests, background, experience, and attitudes
Halo Effect
o Drawing a general impression about an individual on the basis of
a single characteristic (favorable)
Contrast Effects

o Affected by comparisons with other people recently encountered

who rank higher or lower on the same characteristics

o Judging someone on the basis of our perception of the group to
which he or she belongs - simplify complex world, maintain

Mental Shortcuts - Individuals

Employment Interview
o Perceptual biases of raters affect the accuracy of interviewers
judgments of applicants - Formed in a single glance 1/10 of a

Performance Expectations
o Self-fulfilling prophecy (Pygmalion effect): The lower or higher
performance of employees reflects preconceived leader

expectations about employee capabilities

Performance Evaluations
o Appraisals are often the subjective (judgmental) perceptions of
appraisers of another employees job performance

Perceptions and Individual Decision Making

Decision making occurs as a reaction to a problem (which is defined

as a perceived discrepancy between the current state of affairs and a
desired state)

Perception Linkage:
o All elements of problem identification and the decision making
process are influenced by perception.

Problems must be recognized

Data must be selected and evaluated

Rational Decision-making Model

o Assumption:

The decision maker has complete information

Is able to identify all the relevant options in an unbiased

manner (people might satisfice)

Chooses the option with the highest utility

Decision-Making Models in Organizations

Bounded Reality
o The real world model: Most people respond to a complex
problem by reducing the problem to a level at which it can be
readily understood.
o Seeks satisfactory and sufficient solutions from limited data and

o A non-conscious process created from distilled experience that
results in quick decisions
o Relies on holistic associations or links between disparate pieces
of information
o Its fast and affectively charged engaging the emotions

Common Biases and Errors in Decision-Making

Overconfidence Bias
o Believing too much in our own ability to make good decisions
especially when outside of own expertise
Anchoring Bias
o A tendency to fixate on initial information as a starting point and
failing to adequately adjust for subsequent information. E.g.
projection of economic growth of a country with past data and no

other changing factors

Confirmation Bias
o A tendency to seek out information that reaffirms past choices to

discount information that contradicts past judgment.

Availability Bias
o Tendency for people to base judgments on information that is

most readily available - Recent and vivid

Escalation of Commitment
o Increasing commitment to a decision in spite of evidence that it
is wrong especially if responsible for the decision! (sunk costs
already incurred) pump in more money for marketing even
when sales are evidently dropping/gambling/marriage

Randomness Error
o Creating meaning out of random events - superstitions
Winners Curse
o Highest bidder pays too much due to value overestimation
o Likelihood increases with the number of people in auction
Hindsight Bias
o Tendency to believe falsely that one has accurately predicted the
outcome of an event, after that outcome is actually known.

Individual Differences in Decision Making

o Conscientiousness may effect escalation of commitment
Achievement-strivers are likely to increase commitment
(continue to work hard despite evidence of failure)
Dutiful people are less like to have this bias
o Self-Esteem
High self-esteem people are susceptible to self-serving
bias (because they do not want to be seen as failures,
instead of successful)

o Gender
o Women analyze decisions more than men rumination
o Women are twice as likely to develop depression.
o Differences develop early
Organizational Constraints

Performance Evaluation - managerial evaluation criteria influence

Reward Systems - decision with the greatest personal payoff for

Formal Regulations - limit the alternative choices of decision makers
System-imposed Time Constraints - restrict ability to gather or

evaluate information
Historical Precedents - past decisions influence current decisions

Ethics in Decision Making

o Decisions made based solely on the outcome
o Seeking the greatest good for the greatest number
o Dominant method for businesspeople

o Pro: Promotes efficiency and productivity

o Con: Can ignore individual rights, especially minorities

o Decisions consistent with fundamental liberties and privileges
o Respecting and protecting basic rights of individuals such as
o Pro: Protects individuals from harm; preserves rights
o Con: Creates an overly legalistic work environment

o Imposing and enforcing rules fairly and impartially
o Equitable distribution of benefits and costs
o Pro: Protects the interests of weaker members
o Con: Encourages a sense of entitlement

Improving Creativity in Decision Making

o The ability to produce novel and useful ideas
o Components: Expertise, Creative thinking skills, Intrinsic Task
Who has the greatest creative potential?
o Those who score high in Openness to Experience
o People who are intelligent, independent, self-confident, risktaking, have an internal locus-of-control, tolerant of ambiguity,
low need for structure, and who persevere in the face of