Chapter 6 OB

Availability Bias

Tendency for people to base judgments on information that is readily available.

Self-Fulfilling Prophecy (Pygmalion Effect)

characterizes the fact that people's expectations determine their behavior. Expectations become reality. A study was undertaken with 105 soldiers in the Israeli Defense Forces who were taking a fifteen-week combat command course. Soldiers were randomly divided and identified as having high potential, normal potential, and potential not known. Instructors got better results from the high potential group because they expected it confirming the effect of a self-fulfilling prophecy.

Perception

is a process by which individuals organize and interpret their sensory impressions in order to give meaning to their environment. It is important to the study of OB because peoples' behaviors are based on their perception of what reality is, not on reality itself.

Externally caused

is seen as resulting from outside causes; that is, the person is seen as having been forced into the behavior by the situation

Creativity

is the ability to produce novel and useful ideas. These are ideas that are different from what has been done before, but that are also appropriate to the problem or opportunity presented. Creative Potential. Most people have creative potential. People differ in their inherent creativity. A study of lifetime creativity of 461 men and women found that less than one percent were exceptionally creative.

Intuitive Decision Making

Another important decision-making technique is Intuition Perhaps the least rational way of making decisions is intuitive decision making, an unconscious process created from distilled experience. It occurs outside conscious thought; it relies on holistic associations, or links between disparate pieces of information; it's fast; and it's affectively charged, meaning it usually engages the emotions. While intuition isn't rational, it isn't necessarily wrong. Nor does it always contradict rational analysis; rather, the two can complement each other. For most of the twentieth century, experts believed decision makers' use of intuition was irrational or ineffective. We now recognize that rational analysis has been overemphasized and, in certain instances, relying on intuition can improve decision-making. Because it is so unquantifiable, it's hard to know when our hunches are right or wrong. The key is neither to abandon nor rely solely on intuition but to supplement it with evidence and good judgment.

Selective Perception (shortcut when we judge others)

Any characteristic that makes a person, object, or event stand out will increase the probability that it will be perceived. Since we can't observe everything going on about us, we engage in selective perception. As a classic example take Dearborn and Simon, who performed a perceptual study in which 23 business executives read a comprehensive case describing the organization and activities of a steel company. The results along with other results of the study, led the researchers to conclude that the participants perceived aspects of a situation that were specifically related to the activities and goals of the unit to which they were attached. A group's perception of organizational activities is selectively altered to align with the vested interests they represent.

Assumptions of the Model

Assumptions of the Model. 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. Most decisions in the real world don't follow the rational model. People are usually content to find an acceptable or reasonable solution to a problem rather than an optimal one. Choices tend to be limited to the neighborhood of the problem symptom and the current alternative. As one expert in decision making put it, "Most significant decisions are made by judgment, rather than by a defined prescriptive model." People are remarkably unaware of making suboptimal decisions.

Attribution Theory (look at Exhibit 6-2)

Attribution theory suggests that when we observe an individual's behavior, we attempt to determine whether it was internally or externally caused. That determination depends largely on three factors: These are Distinctiveness, Consensus, Consistency. The three determinants in Attribution Theory. These include: Distinctiveness, which refers to whether an individual displays different behaviors in different situations. Consensus occurs if everyone who is faced with a similar situation responds in the same way. Consistency in a person's actions.

Randomness Error

Decision-making becomes impaired when we try to create meaning out of random events.

Factors that influence Perception (look at Exhibit 6-1)

Factors that shape and can distort perception include the perceiver, the target, or the situation. When an individual looks at a target and attempts to interpret what he or she sees, that interpretation is heavily influenced by personal characteristics of the individual perceiver. The more relevant personal characteristics affecting perception of the perceiver are attitudes, motives, interests, past experiences, and expectations.

Steps and assumptions of the ration decision-making model

Individuals in organizations constantly make decisions. They make choices from among two or more options many times during the day and at different levels of important or intensity. Top managers determine their organization's goals, what products or services to offer, how best to finance operations, or where to locate a new manufacturing plant. Middle- and lower-level managers determine production schedules, select new employees, and decide how pay raises are to be allocated. Non-managerial employees also make decisions including whether or not to come to work on any given day, how much effort to put forward once at work, and whether or not to comply with a request made by the boss. A number of organizations in recent years have been empowering their non-managerial employees with job-related decision-making authority that historically was reserved for managers. Decision-making occurs as a reaction to a problem. There is a discrepancy between some current state of affairs and some desired state, requiring consideration of alternative courses of action. One person's problem is another's satisfactory state of affairs. Every decision requires interpretation and evaluation of information. The perceptions of the decision maker will address these two issues: Data are typically received from multiple sources. Which data are relevant to the decision and which are not? Alternatives will be developed, and the strengths and weaknesses of each will need to be evaluated. A number of organizations in recent years have been empowering their non-managerial employees with job-related decision-making authority that historically was reserved for managers. Usually, Decision-making occurs as a reaction to a problem. There is a discrepancy between some current state of affairs and some desired state, requiring consideration of alternative courses of action. One person's problem is another's satisfactory state of affairs. Every decision requires interpretation and evaluation of information. The perceptions of the decision maker will address these two issues: Data are typically received from multiple sources. Which data are relevant to the decision and which are not? Alternatives will be developed, and the strengths and weaknesses of each will need to be evaluated.

Overconfidence Bias

Individuals whose intellectual and interpersonal abilities are weakest are most likely to overestimate their performance and ability. The tendency to be too confident about their ideas might keep some from planning how to avoid problems that arise. Investor overconfidence operates in a variety of ways. People think they know more than they do, and it costs them. Investors, especially novices, overestimate not just their own skill in processing information, but also the quality of the information they're working with.

Confirmation Bias

It is a type of selective perception. Here we seek out information that reaffirms past choices, and discount information that contradicts past judgments.

How does bounded rationality work?

Once a problem is identified, the search for criteria and options begins. The decision maker will identify a limited list made up of the more conspicuous choices, which are easy to find, tend to be highly visible, and they will represent familiar criteria and previously tried-and-true solutions. Once this limited set of options is identified, the decision maker will begin reviewing it. The decision maker will begin with options that differ only in a relatively small degree from the choice currently in effect. The first option that meets the "good enough" criterion ends the search. Satisficing is not always a bad idea. It is a simple process may frequently be more sensible than the traditional rational decision-making model.

Decision makers allow systematic biases and errors to creep into their judgments.

People tend to rely on experience, impulses, gut feelings and rules of thumb. These can lead to distortions. Exhibit 6-4 suggests some techniques to avoid decision biases or errors. But, let's take a look at what the specific types of biases and errors that can occur in the decision process. Focus on Goals Look for information that disconfirms your beliefs Don't try to create meaning out of random events Increase your options

Bounded Rationality

Perhaps a better definition of how a majority of decision are made is Bounded Rationality. When faced with a complex problem, most people respond by reducing the problem to a level at which it can be readily understood. This is because the limited information-processing capability of human beings makes it impossible to assimilate and understand all the information necessary to optimize. People satisfice, that is they seek solutions that are satisfactory and sufficient. Individuals operate within the confines of bounded rationality. They construct simplified models that extract the essential features.

Individual Differences that affect decision-making

Personality- little research so far conducted on personality and decision-making suggests personality does influence our decisions. Second is Conscientiousness. Specific facets of conscientiousness—rather than the broad trait itself—may affect escalation of commitment. Third is Achievement-striving. Achievement-striving people were more likely to escalate their commitment, whereas dutiful people were less likely. Achievement-oriented people hate to fail, so they escalate their commitment, hoping to forestall failure. Achievement-striving individuals appear more susceptible to the hindsight bias, perhaps because they have a greater need to justify their action Fourth is Dutifulness. Dutiful people, however, are more inclined to do what they see as best for the organization. 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. Additional individual characteristics include Gender. Evidence indicates that women analyze decisions more than men. Rumination refers to reflecting at length. In decision making it means over thinking about problems. Women, in general, are more likely than men to engage in rumination. Rumination tendency appears to be moderated by age. Differences are largest during young adulthood and smallest after age 65. Next is Mental Ability. We know people with higher levels of mental ability are able to process information more quickly, solve problems more accurately, and learn faster, so you might expect them also to be less susceptible to common decision errors. Cultural Differences is next. The rational model makes no acknowledgment of cultural differences, nor does the bulk of OB research literature on decision-making. We need to recognize that the cultural background of a decision maker can significantly influence the selection of problems, the depth of analysis, the importance placed on logic and rationality, and whether organizational decisions should be made autocratically by an individual manager or collectively in groups. 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. Differences in time orientation help us understand why managers in Egypt make decisions at a much slower and more deliberate pace than their U.S. counterparts. While rationality is valued in North America, that's not true elsewhere in the world. A North American manager might make an important decision intuitively but know it's important to appear to proceed in a rational fashion because rationality is highly valued in the West. In countries such as Iran, where rationality is not as paramount as other factors, efforts to appear rational are not necessary. Some cultures emphasize solving problems, while others focus on accepting situations as they are. The United States falls in the first category; Thailand and Indonesia are examples of the second. Because problem-solving managers believe they can and should change situations to their benefit, U.S. managers might identify a problem long before their Thai or Indonesian counterparts would choose to recognize it. Decision-making by Japanese managers is much more group-oriented than in the United States. The Japanese value conformity and cooperation. Before Japanese CEOs make an important decision, they collect a large amount of information, which they use in consensus-forming group decisions. In short, there are probably important cultural differences in decision making, but unfortunately not yet much research to identify them.

Stereotyping (shortcut when we judge others)

Stereotyping is judging someone on the basis of our perception of the group to which he or she belongs. Generalization is not without advantages. It is a means of simplifying a complex world, and it permits us to maintain consistency. The problem, of course, is when we inaccurately stereotype. In organizations, we frequently hear comments that represent stereotypes based on gender, age, race, ethnicity, and even weight. From a perceptual standpoint, if people expect to see these stereotypes, that is what they will perceive, whether or not they are accurate.

Contrast Effects (shortcut when we judge others)

We do not evaluate a person in isolation. Our reaction to one person is influenced by other persons we have recently encountered. For example, an interview situation in which one sees a pool of job applicants can distort perception. Distortions in any given candidate's evaluation can occur as a result of his or her place in the interview schedule.

Halo Effect (shortcut when we judge others)

The halo effect occurs when we draw a general impression on the basis of a single characteristic. This phenomenon frequently occurs when students appraise their classroom instructor. Propensity for halo effect to operate is not random. The reality of the halo effect was confirmed in a classic study. Subjects were given a list of traits such as intelligent, skillful, practical, industrious, determined, and warm, and were asked to evaluate the person to whom those traits applied. When the word "warm" was substituted with "cold" the subjects changed their evaluation of the person. The experiment showed that subjects were allowing a single trait to influence their overall impression of the person being judged. Research suggests that it is likely to be most extreme when the traits to be perceived are ambiguous in behavioral terms, when the traits have moral overtones, and when the perceiver is judging traits with which he or she has had limited experience.

6 Steps of the Rational Decision-Making Process (Exhibit 6-3)

They begin with Step 1 which is Defining the problem. A problem is a discrepancy between an existing and a desired state of affairs. Many poor decisions can be traced to the decision maker overlooking a problem or defining the wrong problem. The second step is to Identify the decision criteria important to solving the problem. The decision maker determines what is relevant in making the decision. Any factors not identified in this step are considered irrelevant. This brings in the decision maker's interests, values, and similar personal preferences. The third step is to Weight the previously identified criteria in order to give them the correct priority in the decision. In Step 4, we generate possible options that could succeed in resolving the problem. Step five has us rate each option on each criterion. Critically analyze and evaluate each option. The strengths and weaknesses of each option become evident as they are compared with the criteria and weights established in the second and third steps. And lastly is to compute the optimal decision. Evaluate each option against the weighted criteria and select the alternative with the highest total score.

Anchoring Bias

This is fixating on initial information as a starting point and failing to adequately adjust for subsequent information. Anchors are widely used by people in advertising, management, politics, real estate, and lawyers—where persuasion skills are important. Any time a negotiation takes place, so does anchoring.

Escalation of Commitment

This is staying with a decision even when there is clear evidence that it's wrong. People who carefully gather and consider information consistent with the rational decision-making model are more likely to engage in escalation of commitment than those who spend less time thinking about their choices.

Hindsight Bias

This is the tendency to believe falsely that one has accurately predicted the outcome of an event, after that outcome is actually known. Hindsight bias reduces our ability to learn from the past.

Risk Aversion

This is the tendency to prefer a sure thing instead of a risky outcome is risk aversion. Risk aversion has important implications. Risk-averse employees will stick with the established way of doing their jobs, rather than taking a chance on innovative or creative methods. Ambitious people with power that can be taken away (most managers) appear to be especially risk averse, perhaps because they don't want to lose on a gamble everything they've worked so hard to achieve. Because people are less likely to escalate commitment where there is a great deal of uncertainty, the implications of risk aversion aren't all bad. When a risky investment isn't paying off, most people would rather play it safe and cut their losses, but if they think the outcome is a sure thing, they'll keep escalating. Risk preference is sometimes reversed: people prefer to take their chances when trying to prevent a negative outcome. Trying to cover up wrongdoing instead of admitting a mistake, despite the risk of truly catastrophic press coverage or even jail time, is another example. People will more likely engage in risk-seeking behavior for negative outcomes, and risk-averse behavior for positive outcomes, when under stress.

Three Ethical Decision Criteria-

Utilitarianism, Rights, Justice Ethical considerations should be an important criterion in organizational decision-making. Three Ethical Decision Criteria include the Utilitarian criterion, which is when decisions are made solely on the basis of their outcomes or consequences. The Focus on rights calls on individuals to make decisions consistent with fundamental liberties and privileges as set forth in documents such as the Bill of Rights. A third criterion is to impose and enforce rules fairly and impartially to ensure justice or an equitable distribution of benefits and costs. Union members typically favor this view. Each criterion has advantages and liabilities. A focus on utilitarianism promotes efficiency and productivity, but it can sideline the rights of some individuals, particularly those with minority representation. The use of rights protects individuals from injury and is consistent with freedom and privacy, but it can create a legalistic environment that hinders productivity and efficiency. Public concern about individual rights and social justice suggests managers should develop ethical standards based on nonutilitarian criteria. A focus on justice protects the interests of the underrepresented and less powerful, but it can encourage a sense of entitlement that reduces risk taking, innovation, and productivity. There are no global ethical standards, as contrasts between Asia and the West illustrate. Although ethical standards may seem ambiguous in the West, criteria defining right and wrong are actually much clearer there than in Asia, where few issues are black and white and most are gray. Global organizations must establish ethical principles for decision makers in countries such as India and China and modify them to reflect cultural norms if they want to uphold high standards and consistent practices

The Three-Component Model of Creativity

proposes that individual creativity essentially requires expertise, creative-thinking skills, and intrinsic task motivation. Expertise is the foundation for all creative work. The potential for creativity is enhanced when individuals have abilities, knowledge, proficiencies, and similar expertise in their field of endeavor. Creative thinking skills encompasses personality characteristics associated with creativity, the ability to use analogies, as well as the talent to see the familiar in a different light. Intrinsic task motivation includes the desire to work on something because it's interesting, involving, exciting, satisfying, or personally challenging. This turns creativity potential into actual creative ideas. It determines the extent to which individuals fully engage their expertise and creative skills.

Self-Serving Bias

tendency for individuals to attribute their own successes to internal factors such as ability or effort while putting the blame for failure on external factors such as luck

Internally caused

those that are believed to be under the personal control of the individual.

Fundamental Attribution Error

we have a tendency to underestimate the influence of external factors and overestimate the influence of internal or personal factors.