1. Organizational Psychology Lecture 5
Individual Decision Making

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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.