2. Perception and Individual Decision Making Chapter FIVE

3. Perception

5. What is Perception?  Perception – The process by which people select, organize, interpret, retrieve, and respond to information. –People process information inputs into responses involving feeling and action. –The quality or accuracy of a person ’ s perceptions has a major impact on responses

6. Factors That Influence Perception E X H I B I T 5–1

7. Person Perception: Making Judgments About Others 3 factors: (1) Distinctiveness: shows different behaviors in different situations. (2) Consensus: response is the same as others to same situation. (3) Consistency: responds in the same way over time. 3 factors: (1) Distinctiveness: shows different behaviors in different situations. (2) Consensus: response is the same as others to same situation. (3) Consistency: responds in the same way over time. Attribution Theory When individuals observe behavior, they attempt to determine whether it is internally (control) or externally (force) caused.

8. Attribution Theory E X H I B I T 5–2

9. Errors and Biases in Attributions Fundamental Attribution Error The tendency to underestimate the influence of external factors and overestimate the influence of internal factors when making judgments about the behavior of others. In general, we tend to blame the person first, not the situation. Example: Sales manager attribute poor performance of sales agents to laziness (internal) than innovative product line by competitor (external)

10. Errors and Biases in Attributions (cont’d) Self-Serving Bias The tendency for individuals to attribute their own successes to internal factors while putting the blame for failures on external factors. Thought: When student gets an “A” on an exam, they often say they studied hard. But when they don’t do well, how does the self serving bias come into play? Hint: Whose fault is it usually when an exam is “tough”?

11. Frequently Used Shortcuts in Judging Others Selective Perception People selectively interpret what they see on the basis of their interests, background, experience, and attitudes. Example: 23 executives (6 sales, 5 production, 4 accounting, 8 other) read a case study describing organizational activities of a steel company and rate important problem 83% of sales exec rated sales as important vs 29% of others

12. Frequently Used Shortcuts in Judging Others Halo Effect Drawing a general impression about an individual on the basis of a single characteristic Contrast Effects Evaluation of a person’s characteristics that are affected by comparisons with other people recently encountered who rank higher or lower on the same characteristics

13. Frequently Used Shortcuts in Judging Others Projection Attributing one’s own characteristics to other people. Stereotyping Judging someone on the basis of one’s perception of the group to which that person belongs.

14. Specific Applications in Organizations Judging each other in organizations  Employment Interview –Perceptual biases of raters affect the accuracy of interviewers’ judgments of applicants.  Performance Expectations –Self-fulfilling prophecy (Pygmalion effect): The lower or higher performance of employees reflects preconceived leader expectations about employee capabilities.

15. Specific Applications in Organizations (cont’d)  Ethnic Profiling –A form of stereotyping in which a group of individuals is singled out—typically on the basis of race or ethnicity—for intensive inquiry, scrutinizing, or investigation.  Performance Evaluations –Appraisals are often the subjective (judgmental) perceptions of appraisers of another employee’s job performance.

16. If all of these perceptual shortcuts happen unconsciously, how can we keep the stereotypes we have from interfering with the way we work in group projects? Identify two specific things you could do to help prevent stereotypes from inhibiting effective group relationships. Discuss with a neighbor. Chapter Check-Up: Perception

17. Decision Making

18. Link Between Perceptions and Individual Decision Making Perception of the decision maker Outcomes Problem A perceived discrepancy between the current state of affairs and a desired state. Decisions Choices made from among alternatives developed from data perceived as relevant.

19. Assumptions of the Rational Decision- Making Model Model Assumptions Problem clarity Known options Clear preferences Constant preferences No time or cost constraints Maximum payoff Model Assumptions Problem clarity Known options Clear preferences Constant preferences No time or cost constraints Maximum payoff Rational Decision- Making Model Describes how individuals should behave in order to maximize some outcome.

20. Steps in the Rational Decision-Making Model 1.Define the problem - What is the problem: Homework due on Thursday but did not finish 2.Identify the decision criteria - What should I do? Want to get a “ A ” and good job 3.Allocate weights to the criteria - What is important to me? Good job 4.Develop the alternatives. - What are my options? (1) Ask teacher for extra day (2) Do not finish assignment (3) Quit class 5.Evaluate the alternatives - What the strengths and weaknesses of each option? (1) just ask (2) not good = no grade = no graduate = no job = parents angry (3) same as “ 2 ” 6.Select the best alternative. - #1 E X H I B I T 5–3

21. The Three Components of Creativity Creativity The ability to produce novel and useful ideas. Three-Component Model of Creativity (1)expertise: abilities, knowledge & experience (2)Creative skills: personal characteristics, analogies, seeing problems in a new light (3)Task motivation: desire to work b/c interesting, exciting, challenging; changing potential into actual creative ideas E X H I B I T 5–4 Source: T.M. Amabile, “Motivating Creativity in Organizations,” California Management Review, Fall 1997, p. 43.

22. How Are Decisions Actually Made in Organizations? Bounded Rationality Individuals make decisions by constructing simplified models that extract the essential features from problems without capturing all their complexity. What does this mean? - We are mostly rational beings trying to logically understand things and make sensible choices -BUT world is large and complex, so we cannot understand everything. Also, there are time limits to make decisions = people do not make the best choices Example: Choosing a university. Did you find out about ALL the universities in the world when you decided to come to Konkuk U?

23. How Are Decisions Actually Made in Organizations? (cont’d)  How/Why problems are Identified –Visibility over importance of problem Attention-catching, high profile problems Desire to “solve problems” –Self-interest (if problem concerns decision maker)  Alternative Development –Satisficing: seeking the first alternative that solves problem. –Engaging in incremental rather than unique problem solving through successive limited comparison of alternatives to the current alternative in effect.

24. Common Biases and Errors  Overconfidence Bias –Believing too much in our own ability to make good decisions –Example: 90% of Americans think they will go to heaven, but 86% think Mother Theresa is there  Anchoring Bias –Using early, first received information as the basis for making subsequent judgments –Ex: Salary negotiations  first $$ = determines future salary  Confirmation Bias –Using only the facts that support our decision –Selective not objective

25. Common Biases and Errors  Availability Bias –Using information that is most readily at hand. Recent Vivid –Ex: Which is dangerous? Driving vs Flying  Representative Bias –Assessing the likelihood of an occurrence by inappropriately considering current situation as identical to past –Ex: predict future product performance based on past performance  Winner’s Curse –Highest bidder pays too much –Likelihood of “winner’s curse” increases with the number of people in auction.

26. Common Biases and Errors  Escalation of Commitment –In spite of new negative information, commitment actually increases! –Ex: dating for 10 years = investment  Randomness Error –Predict outcome from random events –Ex: stock price movement  Hindsight Bias –Looking back, once the outcome has occurred, and believing that you accurately predicted the outcome of an event –Ex: You know who will win the football game after the game is finished

27. Intuition  Intuitive Decision Making –An unconscious process created out of distilled experience.  Conditions Favoring Intuitive Decision Making –A high level of uncertainty exists –little precedent to draw on –Variables are less scientifically predictable –“Facts” are limited –Facts don’t clearly point the way –Analytical data are of little use –Several plausible alternative solutions exist –Time is limited and pressing for the right decision

28. Individual Differences in Decision Making Source: A.J. Rowe and J.D. Boulgarides, Managerial Decision Making, (Upper Saddle River, NJ: Prentice Hall, 1992), p. 29.  Personality  Aspects of conscientiousness and escalation of commitment.  Self Esteem High self serving bias  Gender  Women tend to analyze decisions more than men.

29. Organizational Constraints on Decision Makers  Performance Evaluation –Evaluation criteria influence the choice of actions.  Reward Systems –Decision makers make action choices that are favored by the organization.  Formal Regulations –Organizational rules and policies limit the alternative choices of decision makers.  System-imposed Time Constraints –Organizations require decisions by specific deadlines.  Historical Precedents –Past decisions influence current decisions.

30. Ways to Improve Decision Making 1.Analyze the situation and adjust your decision making style to fit the situation. 2.Be aware of biases and try to limit their impact. 3.Combine rational analysis with intuition to increase decision-making effectiveness. 4.Don’t assume that your specific decision style is appropriate to every situation. 5.Enhance personal creativity by looking for novel solutions or seeing problems in new ways, and using analogies.

31. Toward Reducing Bias and Errors  Focus on goals. –Clear goals make decision making easier and help to eliminate options inconsistent with your interests.  Look for information that disconfirms beliefs. –Overtly considering ways we could be wrong challenges our tendencies to think we’re smarter than we actually are.  Don’t try to create meaning out of random events. –Don’t attempt to create meaning out of coincidence.  Increase your options. –The number and diversity of alternatives generated increases the chance of finding an outstanding one. E X H I B I T 5–5 Source: S.P. Robbins, Decide & Conquer: Making Winning Decisions and Taking Control of Your Life (Upper Saddle River, NJ: Financial Times/Prentice Hall, 2004), pp. 164–68.

32. Michael has just discovered he is double registered for two classes at the same time and must make a decision about which one to take this semester. He considers the professor teaching this semester, the time of the class, and the classes his friends are taking. He then considers his options for when he can take each class again, as well as the costs and benefits for taking each this semester versus later next year. He then makes his decision. Michael has just engaged in what? Chapter Check-Up: Decision Making

33. In making his decision, Michael forgot to consider the implications of the color of paint in the room where each class was being offered. Given that room color can influence mood, which can influence performance, why didn’t Michael consider it? Chapter Check-Up: Decision Making

34. Michael engaged in the rational decision making model, and didn’t consider the paint color of the rooms because he operates under the confines of bounded rationality. Chapter Check-Up: Decision Making

35. Chapter Checkup: What biases might have affected Martha Stewart’s judgment? Discuss with a classmate.