Organizational Psychology Lecture 5 Individual Decision Making

Decisions – choices from among two or more alternatives Every individual makes decisions Managers make many! decisions every single day Top managers: determine organization’s goals, what products to offer, how best to finance operations, where to locate new manufacturing plant Middle managers: set production schedules, select new employees, how to allocate pay raises Lower-level managers: how to resolve a conflict between two new employees, when to seek advice from upper management, how best to explain coworkers scope, money and time constraints for the new project Non managerial employees make decisions about their effort , engagement and compliance with boss’s request

Decision making – important part of organizational behavior Nonmanagerial staff gets empowered with decision making authority (historically reserved for managers) They way individuals make decisions is based on their thinking style and problem solving style Quality of choices in decision making is influenced by perception processes Decision making occurs as a reaction to a problem

To make or not to make a decision – perceptual process Decisions require interpretation and evaluation of information Decisions require to screen, process and choose relevant data Decisions require development of alternatives and evaluation of their strengths and weaknesses Perceptual distortions can bias analysis and conclusions

Rational decision making model Define the problem Identify the decision criteria Allocate weights to the criteria Develop the alternatives Evaluate the alternatives Select the best alternative

Role of intuition in decision making Intuitive decision making – unconscious process created from experience Occurs outside conscious thought Relies on holistic associations It is fast and affectively charged Least rational way of decision making, but not necessarily wrong It is highly complex and developed form of reasoning that is based on years of experience and learning Intuition can improve overall decision making process

Common biases and errors in decision making process (1) overconfidence Can produce catastrophic results Being 100 percent sure of an outcome equals to ca. 70% accuracy Studies show that individuals overestimate their intellectual and interpersonal abilities the more entrepreneurs are optimistic about their new venture the less successful it becomes new investors overestimate their skills and the quality of information they have

Common biases and errors in decision making process (2) anchoring bias Fixation on initial information Failure to adjust to subsequent information Reason: our mind emphasizes first information it receives Anchors are widely used by persuasion masters: marketing specialists, politicians, managers, legal workers, realtors During negotiations anchoring takes place as well

Common biases and errors in decision making process (3) confirmation We gather information selectively not objectively Confirmation bias is a case of selective perception: we seek information that is in line with what we already know, or with our preconceived views e.g. our past choices; we rather omit information which is incongruent with it We select information that support our views and we give it too much attention in comparison to contradictory views When we strongly believe in our opinion we are mostly prone to confirmation bias

Common biases and errors in decision making process (4) availability Example: overstating the risk of flying and understating the risk of driving Availability bias is tendency to base judgements on information readily available The availability bias can explain errors managers make when performing performance reviews: more weight is given to recent employee behavior

Bibliography Robbins, S. P., Judge, T. A. (2013). Organizational behavior. New Jersey: Person education, Inc. Whetten, D. A., Cameron K. S. (2011). Developing Management Skills. New Jersey: Person education, Inc.