O.b. c 6 perception and individual decision making

O.B. C-6

PERCEPTION AND INDIVIDUAL DECISION MAKING

Dr. Rajesh KamathAssistant Professor, Department of Public Health,Manipal University


• PERCEPTION : A process by which individuals organise and interpret their sensory impressions in order to give meaning to their environment.

• What we perceive can be substantially different from objective reality.

• Why is it important in O.B.? • Because people’s behaviour is based on their

perception of what reality is, not on reality itself.• The world as it is perceived is the world that is

behaviourally important


• Factors that influence perception• 1.Factors in the Perceiver.• Attitudes, Motives, Interests, Experience,

Expectations.• 2. Factors in the situation.• Time, Work setting, Social setting• 3. Factors in the target.• Novelty, Motion, Sounds, Size, Backgrounds,

Proximity, Similarity.


• Factors that influence perception• 1.Factors in the Perceiver.• Eg. If you expect Police officers to be authoritative, young people to be

lazy, or politicians to be unscrupulous, you may perceive them as such, regardless of what they may actually be.

• 2. Factors in the situation.• Eg. At a nightclub on Saturday night, you might not notice a young

man “dressed to the nines”. Yet that same person dressed in the same manner in the afternoon O.B. class would warrant a lot of attention.

• 3. Factors in the target.• Eg. We have a tendency to group close or similar things together. We

often perceive women, men, whites, african americans, asians, or members of any other group as alike in other, unrelated ways as well.


• PERSON PERCEPTION – MAKING JUDGEMENTS ABOUT OTHERS.• People have beliefs, motives or intentions.• When we observe people, we attempt to explain why they behave

in certain ways.• ATTRIBUTION THEORY : An attempt to determine whether an

individual’s behaviour is internally or externally caused. • Internally caused behaviours are those we believe to be under the

personal control of the individual. Externally caused behaviour is what we imagine the situation forced the individual to do.

• Eg.An employee arrives late. You attribute that to partying late into the night and then waking up late – Internal attribution

You attribute it to a traffic jam on the way to work – external attribution.


• Depends on 3 factors: • 1.Distinctiveness refers to whether an individual displays different behaviours in different

situations. • Different levels of performance on different related tasks – High distinctiveness – External

attribution• Same levels of performance on different related tasks - Low distinctiveness – Internal

attribution 2. Consensus – If everyone who faces a similar situation responds in the same way, we can

say the behaviour shows consensus.• If consensus is high, then we give an External attribution to the act which was not

congruent with the consensus. Eg. If everyone who took a new route to work was late on a particular day, consensus is high; therefore we give an external attribution to the act., whereas if only 1 person was late, then we would look to give an internal attribution.

• 3. Consistency – The more consistent the behaviour, the more we are inclined to attribute it to internal causes.

• Eg: Coming to work late once in a while - External attribution• Coming to work late 3 times a week - Internal attribution


• Comprehensive ex.:Mithilesh Jha generally performs at about the same level on several related tasks(low distinctiveness),

• Other employees frequently perform differently –better or worse-than Jha ji does on his current task(low consensus),

• and Jha ji’s performance on this current task is consistent over time(high consistency),

• then anyone judging Jha ji’s work will likely hold him primarily responsible for his performance(INTERNAL ATTRIBUTION).


• Fundamental attribution error: The tendency to underestimate the influence of external factors and overestimate the influence of internal factors when making judgements about the behaviour of others.

• Eg. A sales manager is prone to attribute the poor performance of her sales agents to laziness rather than to the innovative product line introduced by a competitor.


• Self serving Bias : The tendency for individuals to attribute their own successes to internal factors and put the blame for failures on external factors.

• Eg.: Researchers asked one group of people – “If someone sues you and you win the case, should he pay your legal costs?” 85% responded Yes. Another group was asked : “If you sue someone and lose the case, should you pay his costs?”

• Only 44% answered Yes.


• COMMON SHORTCUTS IN JUDGING OTHERS• 1. Selective perception• 2. Halo Effect• 3. Contrast Effect• 4. Stereotyping


• Eg.3 From 2007 to 2009, the U.S. stock market lost roughly half its value.

• Yet during that time, sell ratings(analysts give one of 3 recommendations:Buy, Sell, Hold) from analysts actually DECREASED slightly.

• Each time the market went down was seen as a new opportunity to buy the stock even cheaper. By looking only at the past price, analysts were relying on a false reference point and failing to recognise that what has fallen can fall further still.


• 1. SELECTIVE PERCEPTION : • The tendency to selectively interpret what one sees on the basis of one’s

interests, background, experience and attitudes.• Eg.1 You are more likely to notice cars like your own.• Eg.2 23 business executives (6 in sales, 5 in production, 4 in accounting,

8 in miscellaneous functions) to read a comprehensive case describing the organisation and activities of a steel company.

• Each manager was asked to write down the most important problem in the case.

• 83% of the sales executives rated sales important.• Only 29% of the others did so.• Conclusion : Participants perceived as important the aspects of a

situation specifically related to their own unit’s activities and goals.


• 2. HALO EFFECT: The tendency to draw a general impression about an individual on the basis of a single characteristic.

• Eg.: If you are a critic of Manmohan Singh, try listing 10 things you like about him.

• If you are an admirer of Manmohan Singh, try listing 10 things you do not like about him.

• Not easy!• That is because OUR GENERAL VIEWS

CONTAMINATE OUR SPECIFIC ONES.


• 3.CONTRAST EFFECT: Evaluation of a person’s characteristics that is affected by comparisons with other people recently encountered who rank higher or lower on the same characteristics.

• Eg.In a series of Job Interviews, a candidate is likely to receive a more favourable evaluation if preceded by mediocre applicants and a less favourable evaluation if preceded by strong applicants.


• 4. STEREOTYPING: Judging someone on the basis of one’s perception of the group to which that person belongs – gender, race, religion, ethnicity, weight.

• Eg: Women won’t relocate for a promotion. Men aren’t interested in childcare. Older workers can’t learn new skills. Overweight people lack discipline.MANAGERS and ADMINISTRATORS must make sure they

are not unfairly or inaccurately applying a stereotype in their evaluations and decisions.


• SPECIFIC APPLICATIONS OF SHORT CUTS IN ORGANISATIONS:

• 1. Employment interview: • Early impressions become entrenched.• First impressions can be formed in 1/10 of a

second. First impressions get much more weightage than impressions formed later.

• Very little change in interviewer’s decisions after the first 4 -5 minutes of an interview.


• 2. Performance expectations: • Self fulfilling prophecy : A situation in which

an individual behaves in ways consistent with the inaccurate perceptions about him by a second individual.

• Eg: Students, soldiers, employees.


• 3. Performance evaluation : • Appraisals can be objective ( eg.sales ). • Subjective appraisals can be problematic

because all the perceptual errors creep in – selective perception, contrast effects, halo effects, and so on.


• The link between Perception and Individual decision making:• Decision making occurs as a reaction to a problem.• But, one person’s problem is another person’s satisfactory

state of affairs.• So, awareness that a problem exists and that a decision might

or might not be needed is a perceptual issue.• Every decision requires interpreting and evaluation information.• Which data are important, which are not – again a matter of

perception.• Perceptual distortions can bias analysis and conclusions

throughout the decision making process.


• Decision making in oganisations:• 1.Rational model• 2. Bounded rationality• 3. Intuition


• Rational : Characterised by making consistent, value maximising choices within specified constraints.

• 1.RATIONAL MODEL• Steps:• 1.Define the Problem.• 2.Identify the decision criteria – i.e all the relevant information – difficult.• 3. Allocate weights to the criteria – Again, difficult.• 4. Develop the alternatives.• 5. Evaluate the alternatives.• 6. Select the best alternative

• Most decisions in the real world don’t follow the rational model. • People are content with an acceptable or reasonable solution rather than an

optimal one.


• 2. BOUNDED RATIONALITY : A process of making decisions by constructing simplified models that extract the essential features from problems without capturing all their complexity.

• The information processing capacity of humans is limited. • So most people reduce complex problems to a level at

which they can readily understand it.• People SATISFICE, I.E. they seek solutions that are

satisfactory and sufficient. • Eg. How did you choose K.M.C. manipal for your M.H.A.

program?


• SATISFICING : • Once a problem is identified, we identify a limited

list of the most visible and relevant choices.• Next, we review only those alternatives that differ

very little from the ideal that we have in mind.• We stop when we get an alternative that is

“GOOD ENOUGH”. Our search ends at the first acceptable one – rather than an optimal one.


• 3. INTUITION: An unconscious process created out of distilled experience.

• Perhaps the least rational way to make decisions, but not necessarily wrong.

• It is a highly complex and highly developed form of reasoning that is based on years of experience and learning.

• Experts now recognise that rational analysis has been overemphasized and that relying on intuition can improve decision making.

• It should be supplemented with evidence and good judgement.


• Common Biases and errors in decision making:• 1. Overconfidence Bias.• 2. Anchoring Bias.• 3. Confirmation Bias.• 4. Availability Bias.• 5. Escalation of commitment.• 6. Randomness error.• 7. Risk aversion.• 8. Hindsight Bias.


• 1. Overconfidence Bias : • Most common and most catastrophic Bias.• “Fools rush in where Angels fear to tread”.

Individuals whose intellectual and interpersonal abilities are weakest are most likely to overestimate their performance and ability.

• As managers and employees learn more about an issue, they tend to become less likely to be overconfident about it.


• 2. Anchoring Bias : A tendency to fixate on initial information and fail to adequately adjust for subsequent information.

• Our mind gives a disproportionate amount of emphasis to the first information it receives.

• Eg: Sinha and Sameer are hospital administrators looking for a job change after 5 years of experience. Sinha was earning 80,000 a month and Sameer 1,20,000 a month.

• Both get an offer for 1,50,000 from FORTIS hospitals. Who is more likely to accept the offer?

• Used extensively in management, bargaining, sales, advertising, law, real estate.


• 3. Confirmation Bias: The tendency to seek out information that re affirms past choices and to discount information that contradicts past judgements.

• We tend to accept at face value information that confirms our preconceived views, while we are critical and skeptical of information that challenges these views.


• 4. Availability Bias : The tendency for people to base their judgements on information that is readily available to them.

• Eg. : Managers doing performance appraisals give more weight to recent employee behaviours than to behaviours of 6 or 9 months earlier.

• Air travel vs Car driving.


• 5.Escalation of commitment : An increased commitment to a previous decision inspite of negative information.

• Eg. : Throwing good money after bad in the stock market

• Happens when individuals see themselves as the cause of the failure.

• People who have invested more time on making the commitment more likely to escalate.


• 6. Randomness Error: The tendency of individuals to believe that they can predict the outcome of random events.

• Decision making suffers when we try to create meaning in random events.

• Eg. Superstitions


• 7. Risk aversion : The tendency to prefer a sure gain of a moderate amount over a riskier outcome, even if the riskier outcome might have a higher expected payoff.

• Eg. Sure rs.50 vs. flip of coin for rs.100. Mathematically both are the same but which one would people choose?

• Risk averse employees will stick to the established way of doing things.

• Sticking with a strategy that has worked in the past does minimise risk but in the long run it will lead to stagnation.


• 8. Hindsight Bias: The tendency, to believe falsely, after an outcome of an event is actually known, that one would have accurately predicted that outcome.

• Reduces our ability to learn from the past.• Makes us think we are better predictors than

we are, can make us falsely confident.• If your actual predictive accracy is 40% but you

think it is 90%, you might be in trouble.


• Influences on decision making : • Individual differences• 1. Personality• 2. Gender• 3. Mental ability


• 1. Personality : • Eg: 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.


• 2. Gender : • Rumination refers to reflecting at length. In

terms of decision making, it means overthinking problems.

• Who ruminates more? Men or Women?• Pros: More careful consideration of problems.• Cons: Can make problems harder to solve,

increase regret over past decisions, increase depression.


• 3. Mental ability : • Smart people are better at work.• Once warned about decision making errors,

more intelligent people learn more quickly to avoid them.


• Organisational constraints on decision making:• 1. Performance evaluation• 2. Reward systems• 3. Formal regulations• 4. System imposed time constraints.• 5. Historical precedents.


• 1. Performance evaluation• Eg.: If a hospital administrator believes the

wards under his responsibility are operating best when he hears nothing negative, we should not be surprised to find his ward staff doing their best to ensure that negative information does not reach him.


• 2. Reward systems• Eg. From the 1930s through the 1980s,

General Motors consistently gave promotions and bonuses to managers who kept a low profile and avoided controversy. The became very adept at dodging tough issues and passing controversial decisions on to committees.


• 3. Formal regulations• Limits decision choices.


• 4. System imposed time constraints.• Deadlines make it difficult for managers to

gather all the information they might like before making a final choice.


• 5. Historical precedents.• Eg.: The largest determinant of the size of any

given year’s budget is last year’s budget.


• ETHICS IN DECISION MAKING.• 3 Ethical decision criteria• 1. Utilitarianism: A system in which decisions are made to

provide the greatest good for the greatest number. • 2. Fundamental liberties and privileges:• Eg: Protection to whistleblowers.• 3. Justice: Equitable distribution of benefits and costs.• Eg: Paying people the same wage for a given job

regardless of performance differences and using seniority as the primary determination in layoff decisions.


• HOMEWORK: DEFINE CREATIVITY AND DISCUSS THE THREE MODEL COMPONENT OF CREATIVITY

• References : • ORGANISATIONAL BEHAVIOUR - STEPHEN

ROBBINS – 14TH EDITION

THANK YOU

O.b. c 6 perception and individual decision making

Business

individual

decision making

external attribution

internal attribution

related tasks

risk aversion

hindsight

random events