This is the summary for the endterm material for the course Organisational Behaviour offered in the first year of Business Administration at the University of Amsterdam.
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Organisational Behaviour (6011P0215Y)
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Organizational Behaviour Endterm Summary
Chapter 6: Perception and Decision Making
Perception is 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 di erent from objective reality.
Perception is important for OB since 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.
A number of factors shape and sometimes distort perception:
- Perceiver; your interpretation of what you see is in uenced by your personal characteristics - attitudes,
personality, motives, interests, past experiences and expectations.
- Target; refers to the object being perceived. The characteristics of the target also a ect our perception.
Because we don’t look at targets in isolation, the relationship of a target to its background in uences
perception, as does our tendency to group close things and similar things together. For example, we can
perceive Asians as alike in unrelated ways as well. Sometimes, di erence can
work in our favour. For instance, a professor wearing casual clothes is
perceived as an individualist and is respected more because he stands out.
- Context/situation; the time at which we see an object or event can in uence
our attention, as can location, light, heat, or situational factors.
People are usually not aware of the factors that in uence their view of reality.
Awareness and objective measures can reduce our perception distortions.
Our person perceptions are formed by rst impressions and small cues that
have little supporting evidence. Research indicates that we form our strongest
impressions based on what we perceive about another’s moral character.
However, our initial information about this can be sketchy and unfounded.
Our perception and judgment of a person’s actions are in uenced by the
assumptions we make about that person’s state of mind. The attribution
theory is an attempt to determine whether an individual’s behaviour is
internally or externally caused. Internally caused behaviours are those an
observer believes to be under the personal behavioural control of another
individual. Externally caused behaviour is what we imagine the situation
forced the individual to do. The determination depends largely on three
factors:
1) Distinctiveness; refers to whether an individual displays di erent behaviours in di erent situations.
For example if someone who regularly blows o other commitments is late for a meeting, we think
this is internally caused. High distinctiveness means externally caused.
2) Consensus; when everyone facing a similar situation responds in the same way.
If consensus is high (so high similarity), we think the behaviour is externally caused.
3) Consistency; the observer looks for consistency in a person’s behaviour.
For example if someone who is always late is late again, there is high consistency so we believe it is
internally caused.
When we make judgements about the behaviour of other people, we tend to underestimate the in uence of
external factors and overestimate the in uence of internal or personal factors. This is called the
fundamental attribution error. For example, if a friend gets bad grade, he/she didn’t study enough. But if
you get a bad grade, the test was too hard. There is also the self-serving bias which refers to the tendency
for individuals to attribute their own successes to internal factors and put the blame for failures on external
factors.
There is mixed evidence about the cultural di erences in perception, but most suggest that there are
di erences in the attributions people make. For example, Asian rms (more collectivistic) tend to blame the
whole organization when it fails, rather than the people in charge.
We make shortcuts for judging others because it allows us to make accurate perceptions rapidly and
provide valid data for making predictions. However, there are some signi cant distortions:
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, 1) Selective perception; the tendency to selectively interpret what one sees on the basis of one’s
interests, background, experience, and attitudes. Because we see what we want to see, we sometimes
draw unwarranted conclusions from an ambiguous situation.
2) Halo e ect; the tendency to draw a general impression about an individual on the basis of a single
characteristic.
The horns e ect is when an interviewer is sensitised to negative things about the applicant.
3) Contrast e ects; we don’t evaluate a person in isolation and our reaction is in uenced by other people
we have recently encountered. Our evaluation of a person is therefore a ected by comparisons made.
4) Stereotyping; judging someone on the basis of one’s perception of the group to which that person
belongs. Stereotypes are deeply ingrained and very powerful, but also widespread generalizations that
sometimes are very unfair.
Shortcuts in judging others is also very applicable in organizations, for example:
- Interviewers often make perceptual judgments during job interviews that are inaccurate. First impressions
carry greater weight than the interview content itself. Managers can also be vulnerable to primacy and
recency e ects. This is information presented early or late in a sequence which dominates memory and
judgement.
- The self-ful lling prophecy and Pygmalion e ect describe how an individual’s behaviour is determined by
others’ expectations. The self-ful lling prophecy is when a person inaccurately perceives a second
person and the resulting expectations cause the second person to behave in ways consistent with the
original perception. Expectations become reality.
- Much of the evaluation of someone’s work, for example promotion and pay raises, is subjective and not
objective. This is problematic because of the errors discussed above.
The similarity-attraction theory states that the more similar to themselves an observer perceives another
person to be (in terms of personality, attributed, values or demographic characteristics), the more prone
they are to like, trust and interact with them. If this happens between an employee and manager, that
employee would be given more opportunities to progress.
Decisions are choices made from among two or more alternatives. Decision making is a subjective process
so perceptions are of large in uence. Decision making occurs as a reaction to a problem which is a
discrepancy between the current state of a airs and some desired state. However, one person’s problem is
another person’s satisfactory state of a airs. Therefore, identifying problems is also a perceptual issue. Our
perceptions will also determine how we interpret and value what kind of information. Again, our perceptual
process will a ect the outcome. For example, we don’t want to say no because it makes us uncomfortable.
There are several decision-making constructs:
- Rational decision making; a six-step model that described how individuals should
behave in order to maximize some outcome. This model assumes that the decision
maker has complete information and will choose among all relevant options the one
with the highest utility. In reality, people are satis ed with any acceptable solution
rather than the optimal one.
- Bounded rationality; our limited information-processing capability makes optimization impossible so
people satis ce which means they seek solution that are satisfactory and su cient. We cannot act with
full rationality so we operate with bounded rationality. This is a process of making decisions by
constructing simpli ed models that extract the essential features from problems without capturing all
their complexity. This model works for the typical individual as follows: the problem and highly visible
alternatives are identi ed and we choose an alternative that meets an acceptable level of performance.
- Intuitive decision making; an unconscious process created out of distilled experience. This is perhaps
the least rational way of making decisions. It occurs outside conscious thoughts which are a ectively
charged, meaning it engages the emotions.
The more we use objective processes for decision making, the more likely we are to correct some of the
problems with our perceptual process.
There are identi able biases and errors in our decision making:
- Overcon dence bias; we tend to be overcon dent about our abilities and the abilities of others.
Individuals whose intellectual and interpersonal abilities are weakest are most likely to overestimate their
performance and ability. Overcon dence often leads to less success because it keeps us from planning
how to avoid possible problems that arise. There are three elements: overestimation (you assume you can
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, do more than you can actually do), over-placement (about how you see yourself in relation to other
people), and over-precision (what you know and how sure you are about what you know is true).
- Anchoring bias; a tendency to xate on initial information, from which one then fails to adequately adjust
for subsequent information. We give a disproportionate amount of emphasis to the rst information we
receive. Any time a negotiation takes place, so does anchoring.
- Con rmation bias; the tendency to seek out information that rea rms past choices and to discount
information that contradicts past judgments. We selectively gather information. Fortunately, those who
feel decision making must be accurate are less prone to con rmation bias.
- Availability bias; the tendency for people to base their judgments on information that is readily available
to them. A combination of readily available information and our previous direct experience with similar
information has a particularly strong impact on our decision making. Also, events that evoke emotions are
more vivid and available in our memory.
- Escalation of commitment; an increased commitment to a previous decision in spite of negative
information. It most likely occurs when individuals view themselves as responsible for the outcome.
- Randomness error; the tendency of individuals to believe that they can predict the outcome of random
events. Decision making su ers when we try to create meaning in random events, particularly when we
turn imaginary patterns into superstitions. For example, a golfer always wears a red shirt to a nal
because he won many tournaments in a red shirt. Decisions based on random occurrences can handicap
us when they a ect our judgment or bias our major decisions.
- 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 payo . Risk aversion has important implications: (1) to
o set the inherent risk employees accept in a commission-based wage, companies may pay
commissioned employees considerable more than they do those on straight salaries, (2) employees will
stick with the established way of doing things instead of coming up with innovative ideas (leads to
stagnation), and (3) people with power that can be taken away don’t want to risk termination so they put
their own best interest above the company’s. People in stressful situations leads to more risk-seeking
behaviour. When a decision is framed positively, people will be more risk averse. When a decision is
framed in a negative way, people will engage in more risky behaviour.
- Hindsight bias; the tendency to believe falsely, after an outcome of an event is actually known, that one
would have accurately predicted the outcome. “What is clear in hindsight is rarely clear before the fact.”
If two people break up for instance, other people are most likely to say “I already thought it was going to
happen” even though this might not be true.
We are all susceptible to biases but not all susceptible to the same degree. Our individual di erences play a
signi cant role in our decision-making processes, while our organizations contain the range of our available
decision choices:
- Individual di erences
• Personality; speci c facets of conscientiousness, particularly achievement-striving and dutifulness,
may a ect escalation of commitment. First, achievement-oriented people hate to fail so they escalate
their commitment, hoping to forestall failure. Dutiful people are more likely to do as best for the
organisation so are less likely to escalate their commitment. Second, achievement-striving individuals
appear more susceptible to hindsight bias. Moreover, people with high self-esteem use the self-
serving bias to preserve this self-esteem.
• Gender; when the situation isn’t stressful, decision making by men and women is about equal in
quality. However, in stressful situations men become more egocentric and make more risky decisions,
while women become more empathetic and their decision making improves.
• Mental ability; people with higher levels of mental ability (so intelligence) are able to process
information more quickly, solve problems more accurately and learn faster. It helps to avoid only some
of the biases (not anchoring, overcon dence and escalation of commitment).
• Cultural di erences; cultures di er a lot in important values with decision-making. (1) Di erences in
time orientation explains why managers from di erent countries make decisions at a di erent pace,
(2) rationality is not necessarily values the same in every country, and (3) some cultures emphasise
solving problems while others focus on accepting situations as they are.
• Nudging; people di er in their susceptibility to suggestion, but we are all receptive to nudging (for
example with commercials) to some degree. Nudging uses psychology to circumvent our natural
negative tendencies. In organization, nudging usually involves strategic placement of facts and
resources that subtly suggest a better decision.
- Organizational constraints
• Performance evaluation systems; managers are in uenced by the criteria on which they evaluate.
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