MGT 3020 Chapter 6 Perceptions and Individual decision making

Errors or biases can distort attributions

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Individual Differences:

1.Personality- - Conscientiousness - High self-esteem Personality influences our decisions. Specific facets of conscientiousness—rather than the broad trait itself—may affect escalation of commitment. Achievement-striving people are more likely to escalate their commitment, whereas dutiful people are less likely to do so. Achievement-oriented people hate to fail, so they escalate their commitment, hoping to forestall failure. Dutiful people, by contrast, 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. Gender -Rumination Additional individual characteristics include gender. For example, women, in general, are more likely than men to engage in rumination. Rumination refers to reflecting at length; in decision making, it translates to over-thinking problems. Evidence indicates that women analyze decisions more than men. The rumination tendency appears to be moderated by age. Differences are largest during young adulthood and smallest after age 65 Mental Ability 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 Cultural differences also come into play. The rational model makes no acknowledgment of cultural differences, nor does the bulk of OB research literature on decision making. However, it is important 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. While rationality is valued in North America, that's not true elsewhere in the world. Some cultures emphasize solving problems, while others focus on accepting situations as they are. The United States falls in the first category, while 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 there is not yet much research to identify them. Nudging Finally, commercials are one of the most outright forms of an organization's attempt to influence our perceptions of a product and our decision to acquire that product. Nudging has also been used positively in the development of corporate social responsibility (CSR) initiatives to change people's expectations for organizations. People differ in their susceptibility to suggestion, but it is probably fair to say we are all receptive to nudging to some degree.

factors tat influence perception

Factors that shape and can distort perception include the perceiver, the target, or the situation, as shown here in Exhibit 6-1. When an individual looks at a target and attempts to interpret what he or she sees, that interpretation is heavily influenced by the personal characteristics of the individual perceiver. The more relevant personal characteristics affecting the perceptions of the perceiver are attitudes, motives, interests, past experiences, and expectations. pg. 171

Lying

One of the top unethical activities we may indulge in daily. It undermines all efforts toward sound decision making. Managers—and organizations—simply cannot make good decisions when facts are misrepresented and people give false motives for their behaviors. Lying is a big ethical problem as well.

Rational Decision making is:

We often think the best decision maker is rational and makes consistent, value-maximizing choices within specified constraints. This Rational Decision Making process follows six steps. Step 1: Define the problem. Step 2: Identify the decision criteria. Step 3: Allocate weights to the criteria. Step 4: Develop the alternatives. Step 5: Evaluate the alternatives. Step 6: Select the best alternative.

Internally caused behaviors

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

Three-Stage Model of Creativity:

creativity involves causes (creative potential and creative environment), creative behavior, and creative outcomes (innovation).

Externally caused behavior

is seen as resulting from outside causes

Availability Bias:

tendency for people to base judgments on information that is readily available

Implications for Managers

Adjust your decision-making approach to the national culture you're operating in and to the criteria your organization values. If you're in a country that doesn't value rationality, don't feel compelled to follow the rational decision-making model or to try to make your decisions appear rational. Adjust your decision approach to ensure compatibility with the organizational culture.

Applications of Shortcuts in Organizations Employment Interview: Performance Expectations Self-fulfilling prophecy, or the Pygmalion effect performance evaluation

Evidence indicates that interviewers make perceptual judgments that are often inaccurate. Moreover, early impressions can become quickly entrenched. In fact, research shows that most interviewers' decisions change very little after the first few minutes of an interview. Evidence demonstrates that people will attempt to validate their perceptions of reality, even when those perceptions are faulty characterizes the fact that people's expectations determine their behavior. Expectations become reality. An employee's performance appraisal is very much dependent upon the perceptual process. Although the appraisal can be objective, many jobs are evaluated in subjective terms. Subjective measures can be problematic because of selective perception, contrast effects, halo effects, and so on.

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 with which they're working.

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.

Common Biases and Errors in Decision Making:

Overconfidence Bias Anchoring Bias Confirmation Bias Availability Bias Escalation of Commitment Randomness Error

Three Ethical Decision Criteria

The first is utilitarianism, which occurs 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; this particular criterion protects whistle-blowers in organizations. The third criterion involves imposing and enforcing 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 focus on rights protects individuals from injury and is consistent with freedom and privacy, but it can create a legalistic environment that hinders productivity and efficiency. 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.

Assumptions of the Rational model:

The rational decision-making model assumes 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.

Behavioral ethics:

an area of study that analyzes how people actually behave when confronted with ethical dilemmas. Their research tells us that while ethical standards exist collectively (e.g., in society and organizations) and individually (e.g., personal ethics), individuals do not always follow ethical standards promulgated by their organizations and we sometimes violate our own standards. There are ways to increase ethical decision making in organizations. First, sociologist James Q. Wilson promulgated the broken windows theory - the idea that decayed and disorderly urban environments may facilitate criminal behavior because they signal antisocial norms. Second, managers should encourage conversations about moral issues; they may serve as a reminder and increase ethical decision making. Finally, we should be aware of our own moral "blind spots" - the tendency to see ourselves as more moral than we are, and others as less moral than they are. Consider cultural differences.Behavioral ethics research stresses the importance of culture in ethical decision making. What is ethical in one culture may be unethical in another. Without sensitivity to cultural differences in defining ethical conduct, organizations may encourage unethical conduct without even knowing it.

creative outcomes

as ideas or solutions judged to be novel and useful by relevant stakeholders. Novelty itself does not generate a creative outcome if it isn't useful; thus, "off-the-wall" solutions are creative only if they help solve the problem. Softs skills help translate ideas into results. Another important factor is organizational climate. A study of health care teams found that team creativity translated into innovation only when the climate actively supported innovation.

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, which can all lead to distortions.

Consensus occurs

if everyone who is faced with a similar situation responds in the same way.

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 people's behaviors are based on their perception of what reality is, not on reality itself.

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.

Hindsight Bias:

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.

Self-serving bias

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

Fundamental attribution error

occurs when we underestimate the influence of external factors and overestimate the influence of internal or personal factors.

Randomness Error:

our tendency to believe we can predict the outcome of random events. Decision making becomes impaired when we try to create meaning out of random events.

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: distinctiveness consensus consistency.

Intuition

the least rational way of making decisions, intuitive decision making is an unconscious process created from distilled experience. It occurs outside conscious thought, relies on holistic associations, or links between disparate pieces of information, is fast, and is 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. The key is neither to abandon nor rely solely on intuition, but to supplement it with evidence and good judgment.

consistency

the more the consistent the behavior the more we are inclined to attribute to internal causes

Escalation of Commitment:

when we stay with a decision even when there is clear evidence that it's wrong. This type of bias is most likely to occur when individuals view themselves as responsible for the outcome.

Distinctiveness refers to

whether an individual displays different behaviors in different situations.

Risk Aversion:

is the tendency to prefer a sure thing instead of a risky outcome. 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 (i.e., most managers) appear to be especially risk averse, perhaps because they don't want to lose everything they've worked so hard to achieve. Generally speaking, people will more likely engage in risk-seeking behavior for negative outcomes, and risk-averse behavior for positive outcomes, when under stress.

Implications for Managers

Combine rational analysis with intuition. These are not conflicting approaches to decision making. By using both, you can actually improve your decision making effectiveness. Try to enhance your creativity. Actively look for novel solutions to problems, attempt to see problems in new ways, use analogies, and hire creative talent. Try to remove work and organizational barriers that might impede your creativity.

Common Shortcuts in Judging Others: selective perception: Halo effect: contrast effects: stereotyping:

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 around us, we engage in selective perception. which occurs when we draw a general impression on the basis of a single characteristic. We do not evaluate a person in isolation. Our reaction to one person is influenced by other individuals we have recently encountered. For example, an interview situation in which one sees a pool of job applicants can distort perception. Distortions of any given candidate's evaluation can occur as a result of his or her place in the interview schedule. wherein we judge 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. We have to monitor ourselves to make sure we're not unfairly applying a stereotype in our evaluations and decisions.

Implications for Managers

Individuals base their behavior not on the way their external environment actually is, but rather on the way they see it or believe it to be. An understanding of the way people make decisions can help us explain and predict behavior, but few important decisions are simple or unambiguous enough for the rational model's assumptions to apply. We find individuals looking for solutions that satisfice rather than optimize, injecting biases and prejudices into the decision process, and relying on intuition. Managers should encourage creativity in employees and teams to create a route to innovative decision making. Specific implications for managers are: Behavior follows perception, so to influence behavior at work, assess how people perceive their work. Often behaviors we find puzzling can be explained by understanding the initiating perceptions. Make better decisions by recognizing perceptual biases and decision-making errors we tend to commit. Learning about these problems doesn't always prevent us from making mistakes, but it does help.

Explain the Link Between Perception and Decision Making

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 importance or intensity. 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. Data are typically received from multiple sources. The perceptions of the decision maker will decide which data are relevant to the decision and which are not. Alternatives will be developed, and the strengths and weaknesses of each need to be evaluated.

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 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 that may frequently be more sensible than the traditional rational decision-making model.) To use the rational model in the real world, you need to gather a great deal of information about all the options, compute applicable weights, and then calculate values across a huge number of criteria. All these processes can cost time, energy, and money. If there are many unknown weights and preferences, the fully rational model may not be any more accurate than a best guess. Sometimes a fast-and-frugal process of solving problems is the best option.

Organizational Constraints

Performance Evaluation Systems Organizational constraints that impinge on decision making begin with performance evaluation. Managers are strongly influenced in their decision making by the criteria by which they are evaluated. The organization's reward system influences decision makers by suggesting to them what choices are preferable in terms of personal payoff. Reward Systems Formal Regulations System-Imposed Time Constraints Other constraints are the formal rules, policies, procedures, and other formalized regulations created by organizations to standardize the behavior of their members. System-imposed time constraints are another influence wherein organizations impose deadlines on decisions. Historical Precedents historical precedents can serve to impede decision making. Decisions have a context. Individual decisions are more accurately characterized as points in a stream of decisions. Decisions made in the past are ghosts, which continually haunt current choices. For example, it is common knowledge that the largest determining factor of the size of any given year's budget is last year's budget.

Creative behavior occurs in four steps, each of which leads to the next:

Problem formulation: any act of creativity begins with a problem that the behavior is designed to solve. Problem formulation: the stage of creative behavior in which we identify a problem or opportunity that requires a solution as yet unknown. Information gathering: the stage of creative behavior when possible solutions to a problem incubate in an individual's mind. Idea generation: the process of creative behavior in which we develop possible solutions to a problem from relevant information and knowledge. Idea evaluation: the process of creative behavior in which we evaluate potential solutions to identify the best one.

Causes ( Creative potential and creative environment) Creative behavior Creative outcomes (innovation)

The first stage, causes of creative behavior, is comprised of creative potential and creative environment. Most people have some of the characteristics shared by exceptionally creative people, but the more of these characteristics we have, the higher our creative potential. The potential for creativity is enhanced when individuals have abilities, knowledge, proficiencies, and similar expertise to their field of endeavor. What environmental factors affect whether creative potential translates into creative behaviors? First and perhaps most important is motivation. If you aren't motivated to be creative, it is unlikely you will be. It is also valuable to work in an environment that rewards and recognizes creative work. A recent nation-level study suggests that countries scoring high on Hofstede's culture dimension of individuality are more creative. Good leadership matters to creativity, too. Studies show that diverse teams can be more creative, but only under certain conditions.

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. Instead, people satisfice; that is, they seek solutions that are satisfactory and sufficient. Individuals operate within the confines of bounded rationality and construct simplified models that extract the essential features.

Anchoring Bias:

This involves 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 law, where persuasion skills are important. Any time a negotiation takes place, so does anchoring.