Chapter # 6:

Perception And Individual

Decision Making
GROUP MEMBERS:

ARSLAN CHAUDHARY

MUHAMMAD MOHSIN

ALI AKRAM

FAHAD QURESHI

MUZAMMIL ISHAQ
PERCEPTION AND INDIVIDUAL DECISION
MAKING
• PERCEPTION : A process by which individuals organize and interpret their sensory impressions
in order to give meaning to their environment.
• What we perceive can be substantially different from objective reality.
• Why is it important in O.B.?
• Because people’s behavior is based on their perception of what reality is, not on reality itself.
PERCEPTION AND INDIVIDUAL DECISION
MAKING
PERCEPTION AND INDIVIDUAL DECISION
MAKING
• PERSON PERCEPTION – MAKING JUDGEMENTS ABOUT OTHERS.

• People have beliefs, motives or intentions.

• When we observe people, we attempt to explain why they behave in certain ways.
PERCEPTION AND INDIVIDUAL DECISION
MAKING
ATTRIBUTION THEORY : An attempt to determine whether an individual’s behavior is internally
or externally caused.
Internally caused behaviors are those we believe to be under the personal control of the
individual. Externally caused behavior is what we imagine the situation forced the individual to
do.
For example : An employee arrives late. You attribute that to partying late into the night and
then waking up late – Internal attribution
You attribute it to a traffic jam on the way to work – external attribution.
PERCEPTION AND INDIVIDUAL DECISION
MAKING
Depends on 3 factors:
1.Distinctiveness: It refers to whether an individual displays different behaviors in different
situations.
2. Consensus: If everyone who faces a similar situation responds in the same way, we can say
the behavior shows consensus.
3. Consistency: The more consistent the behavior, the more we are inclined to
attribute it to internal causes.
PERCEPTION AND INDIVIDUAL DECISION
MAKING
PERCEPTION AND INDIVIDUAL DECISION
MAKING
Fundamental attribution error:
The tendency to underestimate the influence of external factors and overestimate the influence of
internal factors when making judgements about the behavior of others.

For example: A sales manager is prone to attribute the poor performance of her sales agents to
laziness rather than to the innovative product line introduced by a competitor.
PERCEPTION AND INDIVIDUAL DECISION
MAKING
Self serving Bias : The tendency for individuals to attribute their own successes to internal
factors and put the blame for failures on external factors.
For example: Researchers asked one group of people – “If someone sues you and you win the
case, should he pay your legal costs?” 85% responded Yes.
Another group was asked : “If you sue someone and lose the case, should you pay his costs?”

Only 44% answered Yes.

PERCEPTION AND INDIVIDUAL DECISION
MAKING
COMMON SHORTCUTS IN JUDGING OTHERS
1. Selective perception
2. Halo Effect
3. Contrast Effect
4. Stereotyping
PERCEPTION AND INDIVIDUAL DECISION
MAKING
1. SELECTIVE PERCEPTION : The tendency to selectively interpret what one sees on the basis of
one’s interests, background, experience and attitudes.

2. HALO EFFECT: The tendency to draw a general impression about an individual on the basis of
a single characteristic.
PERCEPTION AND INDIVIDUAL DECISION
MAKING
3.CONTRAST EFFECT: Evaluation of a person’s characteristics that is affected by comparisons
with other people recently encountered who rank higher or lower on the same characteristics.

4. STEREOTYPING: Judging someone on the basis of one’s perception of the group to which that
person belongs – gender, race, religion, ethnicity, weight.

MANAGERS and ADMINISTRATORS must make sure they are not unfairly or inaccurately
applying a stereotype in their evaluations and decisions.
PERCEPTION AND INDIVIDUAL DECISION
MAKING
SPECIFIC APPLICATIONS OF SHORTCUTS IN ORGANISATIONS:

1. Employment interview:
• Early impressions become entrenched.
• First impressions can be formed in 1/10 of a second. First impressions get much more
weightage than impressions formed later.
• Very little change in interviewer’s decisions after the first 4 -5 minutes of an interview.
PERCEPTION AND INDIVIDUAL DECISION
MAKING
2. Performance expectations:
If a manager expects big things from her people, they’re not likely to let her down.
Similarly, if she expects only minimal performance, they’ll likely meet those low
expectations. Expectations become reality
Self fulfilling prophecy : A situation in which an individual behaves in ways consistent
with the inaccurate perceptions about him by a second individual.

3. Performance evaluation :
Appraisals can be objective ( eg.sales ).
Subjective appraisals can be problematic because all the perceptual errors creep in –
selective perception, contrast effects, halo effects, and so on.
PERCEPTION AND INDIVIDUAL DECISION
MAKING
The link between Perception and Individual decision making:
• Decision making occurs as a reaction to a problem.
• So, awareness that a problem exists and that a decision might or might not be needed is a
perceptual issue.
• Every decision requires interpreting and evaluation information.
• Which data are important, which are not – again a matter of perception.
• Perceptual distortions can bias analysis and conclusions throughout the decision making
process.
PERCEPTION AND INDIVIDUAL DECISION
MAKING
Decision making in organizations:
1.Rational model
2. Bounded rationality
3. Intuition
PERCEPTION AND INDIVIDUAL DECISION
MAKING
1. Rational model: The rational decision-making model relies on a number of assumptions,
including 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
PERCEPTION AND INDIVIDUAL DECISION
MAKING
2. BOUNDED RATIONALITY : A process of making decisions by constructing simplified models
that extract the essential features from problems without capturing all their complexity.
How does bounded rationality work for the typical individual?
Once a problem is identified, we identify a limited list of the most visible and relevant choices.
Next, we review only those alternatives that differ very little from the ideal that we have in
mind.
We stop when we get an alternative that is
“GOOD ENOUGH”. Our search ends at the first acceptable one – rather than an optimal one.
PERCEPTION AND INDIVIDUAL DECISION
MAKING
3. INTUITION: An unconscious process created out of distilled experience.
• Perhaps the least rational way to make decisions, but not necessarily wrong.
• It is a highly complex and highly developed form of reasoning that is based on years of
experience and learning.
• Experts now recognize that rational analysis has been overemphasized and that relying on
intuition can improve decision making.
• It should be supplemented with evidence and good judgement.
PERCEPTION AND INDIVIDUAL DECISION
MAKING
Common Biases and errors in decision making:
1. Overconfidence Bias.
2. Anchoring Bias.
3. Confirmation Bias.
4. Availability Bias.
5. Escalation of commitment.
6. Randomness error.
7. Risk aversion.
8. Hindsight Bias.
PERCEPTION AND INDIVIDUAL DECISION
MAKING
1. Overconfidence Bias: When decision makers tend to think they know more than they do or
hold unrealistically positive views of themselves and their performance, they’re exhibiting the
overconfidence bias.
2. Anchoring Bias : A tendency to fixate on initial information and fail to adequately adjust for
subsequent information.
3. Confirmation Bias:The tendency to seek out information that reaffirms past choices and to
discount information that contradicts past judgements.
4. Availability Bias: The tendency for people to base their judgements on information that is
readily available to them.
PERCEPTION AND INDIVIDUAL DECISION
MAKING
5.Escalation of commitment : An increased commitment to a previous decision in spite of
negative information.
6. Randomness Error: The tendency of individuals to believe that they can predict the outcome
of random events.
7. Risk aversion : The tendency to prefer a sure gain of a moderate amount over a riskier
outcome, even if the riskier outcome might have a higher expected payoff.
8. Hindsight Bias: the tendency for decision makers to falsely believe that they would have
accurately predicted outcome of an event once that outcome is actually known.
PERCEPTION AND INDIVIDUAL DECISION
MAKING
PERCEPTION AND INDIVIDUAL DECISION
MAKING
Influences on decision making : Individual differences
1. Personality
2. Gender
3. Mental ability
PERCEPTION AND INDIVIDUAL DECISION
MAKING
1. Personality :
◦ People with high self esteem are strongly motivated to maintain it, so they use the self serving bias to
preserve it. They blame others for their failures while taking credit for successes.
2. Gender :
◦ Rumination refers to reflecting at length. In terms of decision making, it means overthinking problems.
3. Mental ability :
◦ Smart people are better at work.
◦ Once warned about decision making errors, more intelligent people learn more quickly to avoid them.
4. Cultural Differences:
◦ 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.
PERCEPTION AND INDIVIDUAL DECISION
MAKING

Organizational constraints on decision making:

1. Performance evaluation
2. Reward systems
3. Formal regulations
4. System imposed time constraints.
5. Historical precedents.
PERCEPTION AND INDIVIDUAL DECISION
MAKING
Performance Evaluation:
If a hospital administrator believes the wards under his responsibility are operating best when he hears
nothing negative, we should not be surprised to find his ward staff doing their best to ensure that
negative information does not reach him.

Reward systems:
From the 1930s through the1980s, General Motors consistently gave promotions and bonuses to
managers who kept a low profile and avoided controversy. The became very adept at dodging tough
issues and passing controversial decisions on to committees.
Formal regulations:
Limits decision choices.
PERCEPTION AND INDIVIDUAL DECISION
MAKING
System imposed time constraints:
Deadlines make it difficult for managers to gather all the information they might like before making a
final choice.

Historical precedents:
The largest determinant of the size of any given year’s budget is last year’s budget.
PERCEPTION AND INDIVIDUAL DECISION
MAKING
ETHICS IN DECISION MAKING.
3 Ethical decision criteria:
1. Utilitarianism: A system in which decisions are made to provide the greatest good for the
greatest number.
2. Fundamental liberties and privileges:
Protection to whistleblowers - Individuals who report unethical practices by their employer to
outsiders.
3. Justice: Equitable distribution of benefits and costs.
Paying people the same wage for a given job regardless of performance differences and using
seniority as the primary determination in layoff decisions.
PERCEPTION AND INDIVIDUAL DECISION
MAKING

Improving Creativity in Decision Making

Creativity: The ability to produce novel and useful ideas.

Three-component model of creativity: The proposition that individual creativity requires
expertise, creative thinking skills, and intrinsic task motivation.