Management Series: Perception and Decision Making in Business

 PERCEPTION & DECISION MAKING 

Learning Outcomes:

1. Explain the factors that influence perception.
   
2. Describe attribution theory.
   
3. Explain the link between perception and decision-making.
   
4. Explain how individual differences and organizational constraints affect decision-making.
   

The old saying is that “perception is reality” and managers must learn what “reality” their workers are reacting to in order to effectively predict behavior.  This topic examines how perception acts to create an employee’s view of reality and modifies decision-making. 

WHAT IS PERCEPTION?

Perception is a process by which individuals organize and interpret their sensory impressions in order to give meaning to their environment. However, what we perceive can be substantially different from objective reality. For example, all employees in a firm may view it as a great place to work—favorable working conditions, interesting job assignments, good pay, excellent benefits, understanding and responsible management—but, as most of us know, it’s very unusual to find such agreement. 

The study of perception is important simply because people’s behavior is based on their perceptions of what reality is, not on reality itself. The world as it is perceived is the world that is behaviorally important. OB is concerned with “people perception” because how people see each other can, in large part, determine how well these individuals can work together and indicate an organization’s level of potential conflict. 

Attribution Theory

The attribution theory helps us to understand our perceptions about others.  Research has shown that our perceptions about others are based upon the assumptions we make about them.  The attribution theory says that when we observe behavior we try to determine if it is internally or externally driven.  If it is internally driven it is under the person’s control whereas external causes are not under the individual’s control.   

We can use three factors to help us decide if behavior is internally or externally controlled:  distinctiveness, consensus, consistency.  Distinctiveness shows different behaviors in different situations.  Consensus looks at the response and compares it to others in the same situation to see if it is consistent with the behaviors of others.  Consistency looks to see if the response is the same over time.

Attribution Errors

There are errors and biases in the attributions we make.  First, we often tend to underestimate the influence of external factors and overestimate the influence of internal factors.  This is called the fundamental attribution error.

The next common error is the self-serving bias.  This bias exists when individuals attribute their own successes to internal factors and blame external factors when they don’t have success.

There are some frequently used shortcuts in judging others.  People will utilize past experience, their attitudes and their interests to interpret information on their own biases, often misperceiving the situation - Selective Perception 

Judgment can also utilize the halo effect where they will draw generally favorable impressions about an individual with a single characteristic is positive.  The opposite is true when they draw unfavorable impressions about an individual based on a single negative characteristic, this is called the horn effect.

Contrast effects occur when we are making judgments about an individual and comparing them to other individuals we have recently encountered. 

Stereotyping is when we judge someone on the basis of the perception of the group to which he or she belongs.  

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TUTORIAL ACTIVITY   Using your favorite search engine, enter the term “famous perceptual experiments” and select ONE (1) that look interesting to you. Based on your own opinion, describe what impact these studies have on organizational behavior.

The Link Between Perception and Decision Making

In organisational behaviour, we are concerned with how decisions are made and perceptions play a significant role in that process.  Often decision-making occurs as a reaction to a problem or a perceived discrepancy between the way things are and the way we would like them to be.  A decision is then made based on various alternatives that have been developed from the data collected.  Perception influences this entire process from problem recognition to data selection to alternatives chosen.

Decision-making is done by individuals but occurs in organizations.  There are some models that can help us in thinking through decision-making in organizations.  The first is the Rational decision-making model. The steps are outlined in this slide.  Although this is a good model it is more of a goal than a practical method. This is because the model assumes a perfect world in order to make decisions.  It assumes that there is complete information, that every option has been identified and that there is a maximum payoff.

The second, bounded reality, represents more of the real world where it seeks solutions that are the best given the information that is available.  Basically bounded rationality constructs simplified models that identify the essential features of problems without getting into all their complexity.

The third model is based on intuition - Intuitive Decision Making.  This is the non-conscious process that occurs from experiences that result in quick decisions. Most of the time, decisions were made based on gut feeling.

Common Biases and Errors

Business leaders are well aware that decision-making is immensely difficult to get right. They engage in bounded rationality, but they also allow systematic biases and errors to creep into their judgments. There are many biases and errors that occur in the decision-making process:

• Overconfidence Bias
  Individuals overestimate or have excessive confidence in their ability to predict or foresee future events. This will cause the decision maker to unsupported or risky decisions.
• Hindsight Bias
  This is the tendency of individuals to see past mistakes or occurrences as obvious. After the event has occurred, individuals believe that they did or should have seen it coming. This is important when evaluating others' decisions.
• Anchoring Effect
  Anchoring is when someone attaches themselves to an initial bit of information. In decision-making, it entails people placing too much emphasis on a single piece of information. This can cause the decision maker to fail to consider other important information.
• Framing Bias
  Framing bias is an individual's response to how a situation or decision is presented. This can lead to individuals being deceived or manipulated by third parties.
• Escalation of Commitment
  This is a tendency of individuals to continue to follow what has proven to be a negative or unproductive course of action. Also known as the sunk cost fallacy or sunk cost bias, because the tendency is motivated by an unwillingness to admit that they are wrong or accept that resources are lost or wasted (they may be able to recover the investment).
• Immediate Gratification
  This is the tendency to make the immediacy of a potential solution to a problem or situation the most important criterion. The result is the failure to consider all available options and settling for a sub-part outcome from a decision that fails to deliver all available value.
• Selective Perception
  This is the tendency to see a particular situation or issue from a chosen perspective. This is related to the team-based mentality. We see all situations or issues through a common lens that influences our ability to understand alternative or conflicting points of view or alternatives.
• Confirmation Bias
  Confirmation bias is actively looking for information or facts in a situation that supports a particular choice or decision. This approach causes the decision maker to ignore evidence to the contrary. This can also cause a failure to consider contrary information of positions.
• Availability Bias
  Availability bias is a focus on immediate information or situations that come to one's mind. The result is that we tend to believe the information or experience that we recall or demonstrative or explicative of a situation or scenario. This comes at the expense of looking for additional information that could lead to a further understanding of the situation. As such, a decision is made on limited or superficial information.
• Self-Serving Bias
  This is one's tendency to attribute the positive results of a decision or situation to one's own actions or decisions. Likewise, it causes individuals to attribute negative consequences to factors outside of their control. This can cause an inability to accurately assess or affect a situation through decision-making.

• Commitment Errors
  This is an increased commitment to a previous decision in spite of negative information. A business owner may put some money down on a storefront location to rent DVDs and Blu-rays, start purchasing stock for his or her shelves and hire a few people to help him or her watch the cash register. The owner may review some data and stats that indicate people don’t go out and rent videos too much anymore, but, because he or she is committed to the location, the stock, the people, the owner is going to continue down that path and open a movie rental location.

  Managers sometimes want to prove their initial decision was correct by letting a bad decision go on too long, hoping the direction will be corrected. These are often costly mistakes.

There are many organizational constraints to good decision-making that create deviations from the rational model defined earlier.  Managers shape their decisions on performance evaluations, reward systems and formal regulations.  They also base decisions on system-imposed time constraints and historical precedents.  All these factors may influence the decisions that are made.

Creativity in Decision Making

Better decisions are those that incorporate novel and useful ideas or better known as creativity.  An organization will tend to make better decisions when creative people are involved in the process.  So it is important to identify people who have that creative potential.  Some of the methods and theories identified in earlier chapters can help in this process.  For example, those who score high in openness to experience tend to be more creative.

The three-component model of creativity proposes that individual creativity results from a mixture of three components, expertise, creative-thinking skills and intrinsic task motivation.  Expertise is the foundation and is based on the knowledge and experience of the individual.  Creative-thinking skills are the personality characteristics associated with creativity such as the ability to use analogies and the talent to see things differently.  Intrinsic task motivation is the desire to do the job because of the characteristics associated with the job.