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Chapter Overview

The old saying is that “perception is reality” and managers must learn what “reality” their workers are reacting to in order to effectively predict behavior. This chapter examines how perception acts to create an employee’s view of reality and modifies decision making.

Introduction

· This chapter examines perception and the influences on perception. It continues with an exploration of how individuals make decisions and how perception can influence those decisions.

What is Perception?

· Perception is a process by which individuals organize and interpret their sensory impressions in order to give meaning to their environment.

· However, what we perceive can be substantially different from objective reality.

· For example, all employees in a firm may view it as a great place to work—favorable working conditions, interesting job assignments, good pay, excellent benefits, understanding and responsible management—but, as most of us know, it’s very unusual to find such agreement.

· The study of perception is important simply because people’s behavior is based on their perceptions of what reality is, not on reality itself.

· The world as it is perceived is the world that is behaviorally important.

· Factors Influencing Perception.

· Perceiver. When you look at a target and attempt to interpret what you see, your interpretation is heavily influenced by your personal characteristics.

a. Characteristics that affect perception include your attitudes, personality, motives, interests, past experiences, and expectations.

· Target. The object being perceived.

· Characteristics of the target will affect how it is perceived.

· Things that are bright, beautiful, loud, or unusual are far more likely to be noticed.

· The relationship of the target to its background influences perception as does the human trait of grouping similar things together.

· Context. The context in which the perception is made.

· The context (time, location, light, heat, the appropriateness of attire) can influence the extent of perception of a target.

· Person Perception: Making Judgments About Others.

· Organizational behavior (OB) is concerned with people perception because how people see each other can, in large part, determine how well these individuals can work together and indicate an organization’s level of potential conflict.

· Person perception: the perceptions people form about each other.

· Attribution Theory.

· Nonliving objects such as desks, machines, and buildings are subject to the laws of nature, but they have no beliefs, motives, or intentions. People do.

1) That’s why when we observe people, we attempt to explain why they behave in certain ways.

2) Our perception and judgment of a person’s actions therefore will be significantly influenced by the assumptions we make about that person’s internal state.

3) Attribution theory tries to explain the ways we judge people differently, depending on the meaning we attribute to a behavior

· Internal and External Causation. Attribution theory suggests that when we observe an individual’s behavior, we attempt to determine whether it was internally or externally caused.

1) Behaviors that are believed to be under the personal control of the individual are internally caused.

2) Behaviors that are believed to be outside of the personal control of the individual are externally caused. The person is forced into the behavior by outside causes.

· Distinctiveness, Consensus, and Consistency.

1) Distinctiveness refers to whether an individual displays different behaviors in different situations.

a) Is the employee who arrives late today also the one coworkers say regularly blows off commitments?

(1) What we want to know is whether this behavior is unusual.

(2) If it is, we are likely to give it an external attribution.

(3) If it’s not, we will probably judge the behavior to be internal.

2) Consensus is if everyone who faces a similar situation responds in the same way.

a) The behavior of a tardy employee meets this criterion if all employees who took the same route to work were also late.

b) From an attribution perspective, if consensus is high, you would probably give an external attribution to the employee’s tardiness.

c) If other employees who took the same route made it to work on time, you would attribute his lateness to an internal cause.

3) Consistency.

a) An observer looks for consistency in a person’s actions.

(1) Coming in 10 minutes late for work is not perceived in the same way for an employee who hasn’t been late for several months as it is for an employee who is late two or three times a week.

(2) The more consistent the behaviors, the more we are inclined to attribute it to internal causes.

· Exhibit 6-1 summarizes the key elements in attribution theory.

1) It tells us, for instance, that if an employee, Katelyn, generally performs at about the same level on other related tasks as she does on her current task (low distinctiveness), other employees frequently perform differently—better or worse—than Katelyn does on that current task (low consensus), and Kim’s performance on this current task is consistent over time (high consistency), anyone judging Katelyn’s work will likely hold her primarily responsible for her task performance (internal attribution).

2) One of the most interesting findings from attribution theory research is that errors or biases distort attributions.

a) When we make judgments about the behavior of other people, we tend to underestimate the influence of external factors and overestimate the influence of internal or personal factors.

(1) This fundamental attribution error can explain why 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.

b) Individuals and organizations also tend to attribute their own successes to internal factors such as ability or effort, while putting the blame for failure on external factors such as bad luck or unproductive coworkers.

(1) This is the self-serving bias.

c) The evidence on cultural differences in perception is mixed but generally indicates that there are differences across cultures in the attributions people make.

(1) Individuals from Asian cultures tend to make group-based stereotypes, whereas Westerners tend to focus on the individual.

(2) However, while self-serving biases are less common in East Asian cultures, they do still exist.

· Common Shortcuts in Judging Others.

· We use a number of shortcuts when we judge others.

1) These techniques are frequently valuable: they allow us to make accurate perceptions rapidly and provide valid data for making predictions.

a) Understanding these shortcuts can help you recognize when they can result in significant distortions.

· Selective Perception. Selective perception allows us to speed-read others, but not without the risk of drawing an inaccurate picture.

1) Any characteristic that makes a person, an object, or an event stand out will increase the probability that we will perceive it.

2) It is impossible for us to assimilate everything we see; we can take in only certain stimuli.

a) This tendency explains why you’re more likely to notice cars like your own or why a boss may reprimand some people and not others who are doing the same thing.

b) Because we can’t observe everything going on about us, we engage in selective perception.

3) Because we see what we want to see, we can draw unwarranted conclusions from an ambiguous situation.

· Halo Effect. Drawing an overall impression based on a single characteristic, such as intelligence, sociability, or appearance.

1) Halo effects can falsely enhance or reduce the perceived overall characteristics of an individual.

2) This effect can also result in a negative impression.

· Contrast Effect. Contrast effect can distort perceptions.

1) We don’t evaluate a person in isolation.

2) Other persons we have recently encountered influence our reaction to a person.

· Stereotyping. Judging an individual based on the perception of a group to which the target belongs is known as stereotyping.

1) We rely on generalizations every day because they help us make decisions quickly; they are a means of simplifying a complex world. It’s less difficult to deal with an unmanageable number of stimuli if we use heuristics or stereotypes.

2) The problem occurs, of course, when we generalize inaccurately or too much. In organizations, we frequently hear comments that represent stereotypes based on gender, age, race, religion, ethnicity, and even weight.

3) Stereotypes can be deeply ingrained and powerful enough to influence life-and-death decisions.

a) One study, controlling for a wide array of factors (such as aggravating or mitigating circumstances), showed that the degree to which black defendants in murder trials looked stereotypically black essentially doubled their odds of receiving a death sentence if convicted.

Link Between Perception and Individual Decision Making

· Individuals in organizations make decisions, choices from among two or more alternatives.

· Decision making occurs as a reaction to a problem.

· That is, a discrepancy exists between the current state of affairs and some desired state, requiring us to consider alternative courses of action.

· Most problems don’t come neatly labeled “problem.”

· 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 us to interpret and evaluate information.

1) We typically receive data from multiple sources and need to screen, process, and interpret it.

2) The decision maker’s perceptions will answer that question, “Which data are relevant to the decision, and which are not?”

· We also need to develop alternatives and evaluate their strengths and weaknesses.

1) Again, the individual’s perceptual process will affect the final outcome.

2) Finally, throughout the entire decision-making process, perceptual distortions often surface that can bias analysis and conclusions.

Decision Making in Organizations

· Business schools generally train students to follow rational decision-making models.

· Although these models have considerable merit, they don’t always describe how people actually make decisions.

· This is where OB enters the picture: to improve how we make decisions in organizations, we must understand the decision-making errors people commit (in addition to the perception errors we’ve discussed).

· The Rational Model, Bounded Rationality, and Intuition

· Rational Decision Making. Making consistent, value-maximizing choices within specified constraints.

· Rational decision-making model: This model has six steps that lead to an optimal solution.

1) The Six Steps of the Model:

a) Define the problem.

b) Identify decision criteria.

c) Weight the previously identified criteria.

d) Generate possible alternatives.

e) Rate each alternative upon each criterion.

f) Compute the optimal decision.

2) Assumptions of the Model: One of the reasons that this model is rarely fully utilized in the real world is because the assumptions are almost never all met.

a) Complete knowledge. The decision maker is assumed to have complete knowledge of the situation.

b) Known options. The decision maker is assumed to be able to identify all relevant options in an unbiased manner.

c) Highest utility. The assumption is that the decision maker will always choose the option with the highest utility.

· Bounded Rationality. Bounded rationality refers to the limited information-processing capability of human beings that makes it impossible to assimilate and understand all the information necessary to optimize.

1) So most people respond to a complex problem by reducing it to a level at which they can readily understand it.

2) Also many problems likely don’t have an optimal solution because they are too complicated to be broken down into the parameters of the rational decision-making model.

3) So people satisfice; that is, they seek solutions that are satisfactory and sufficient.

· Because the human mind cannot formulate and solve complex problems with full rationality, we operate within the confines of bounded rationality.

1) We construct simplified models that extract the essential features from problems without capturing all their complexity.

2) We can then behave rationally within the limits of the simple model.

3) 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.

a) All these processes can cost you time, energy, and money.

b) And if there are a great number of unknowns when it comes to weights and preferences, the fully rational model may not be any more accurate than a best guess.

c) Sometimes a fast-and-frugal process of solving problems might be your best option.

· Intuition. Perhaps the least rational way of making decisions is to rely on intuition.

· Intuitive decision making is an unconscious process created from distilled experience.

1) Its defining qualities are that:

a) it occurs outside conscious thought;

b) it relies on holistic associations, or links between disparate pieces of information;

c) it’s fast;

d) and it’s affectively charged, meaning it usually engages the emotions.

· Although intuition isn’t rational, it isn’t necessarily wrong.

· Nor does it always operate in opposition to rational analysis; rather, the two can complement each other.

Common Biases in Decision Making

· Decision makers engage in bounded rationality, but they also allow systematic biases and errors to creep into their judgments.

· To minimize effort and avoid difficult trade-offs, people tend to rely too heavily on experience, impulses, gut feelings, and convenient rules of thumb.

· In many instances, these shortcuts are helpful. However, they can lead to severe distortions of rationality.

· Following are the most common biases in decision making.

1) Overconfidence Bias.

a) The likelihood of overestimating the probability of being correct.

b) Tends to decrease as intellectual and interpersonal abilities rise: knowledge reduces overconfidence.

2) Anchoring Bias.

a) Anchoring bias is the tendency to fixate on initial information and fail to adequately adjust for subsequent information.

b) The first information given forms the basis for the process, no matter what additional information is provided later.

3) Confirmation Bias.

a) Confirmation bias represents a specific case of selective perception. Information used in decision making is selectively gathered: information that reaffirms past choices is amplified, while data that contradicts those choices is discounted.

b) Information that agrees with preconceived views is accepted at face value, while other information is criticized skeptically.

4) Availability Bias.

a) The tendency for people to base their judgments on information that is readily available to them is availability bias.

b) Emotional, vivid, or recent events tend to be more available in the minds of decision makers and therefore carry a greater weight in decision making.

c) Causes people to overestimate the chances of unlikely but vivid events and underestimate chances of more likely, but less dramatic, events.

5) Escalation of Commitment.

a) Escalation of commitment bias refers to staying with an initial decision through a series of follow-on decisions, even when there is clear evidence that the initial decision was wrong.

b) This bias often occurs when the decision maker views himself or herself as responsible for the failure.

6) Randomness Error.

a) Most of us like to think we have some control over our world. Our tendency to believe we can predict the outcome of random events is the randomness error.

7) Risk Aversion.

a) Nearly everyone but committed gamblers would rather have the sure thing than a risky prospect.

b) This tendency to prefer a sure thing over a risky outcome is risk aversion.

(1) Risk aversion has important implications.

(2) To offset the risks inherent in a commission-based wage, companies pay commissioned employees considerably more than they do those on straight salaries.

(3) Risk-averse employees will stick with the established way of doing their jobs, rather than taking a chance on innovative or creative methods.

(4) Sticking with a strategy that has worked in the past does minimize risk, but in the long run, it will lead to stagnation.

(5) 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.

(6) Chief executive officers (CEOs) at risk of being terminated are also exceptionally risk averse, even when a riskier investment strategy is in their firms’ best interests.

8) Hindsight Bias.

a) The tendency to believe (falsely) once the outcome of an event is actually known that the results could have been accurately predicted is hindsight bias.

b) This bias reduces our ability to learn from the past and falsely inflates our opinion of our ability to make accurate predictions.

Influences on Decision Making: Individual Differences and Organizational Constraints

· Individual Differences.

· Personality. Specific facets of conscientiousness—particularly achievement striving and dutifulness—may affect escalation of commitment.

· First, achievement-oriented people hate to fail, so they escalate their commitment, hoping to forestall failure.

· Second, achievement-striving individuals appear more susceptible to hindsight bias, perhaps because they have a need to justify their actions.

· We don’t have evidence yet on whether dutiful people are immune to this bias.

· Gender. Who makes better decisions, men or women? It depends on the situation.

· When the situation isn’t stressful, decision making by men and women is about equal in quality. In stressful situations, it appears that men become more egocentric and make more risky decisions, while women become more empathetic and their decision making improves.

· General Mental Ability. We know people with higher levels of general mental ability (GMA; see Chapter 5) are able to process information more quickly, solve problems more accurately, and learn faster, so you might expect them to be less susceptible to common decision errors.

· However, GMA appears to help people avoid only some of them.

1) Smart people are just as likely to fall prey to anchoring, overconfidence, and escalation of commitment; probably because being smart doesn’t alert you to the possibility you’re too confident or emotionally defensive.

· Cultural Differences. Cultures differ in time orientation, the value they place on 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, for instance, why managers in Egypt make decisions at a much slower and more deliberate pace than their U.S. counterparts.

· Second, while rationality is valued in North America, that’s not true elsewhere.

1) A North American manager might make a decision intuitively but know it’s important to appear to proceed in a rational fashion because rationality is highly valued in the West.

2) In countries such as Iran, where rationality is not paramount to other factors, efforts to appear rational are not necessary.

· Third, some cultures emphasize solving problems, while others focus on accepting situations as they are.

1) 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 as such.

· Fourth, decision making in Japan, a collectivistic society (see Chapter 4), is much more group-oriented than in the United States, an individualistic society (see Chapter 4).

· The Japanese value conformity and cooperation, so before Japanese CEOs make an important decision, they collect a large amount of information to use in consensus-forming group decisions.

· Nudging. Anyone who has ever seen a commercial knows about nudging. Commercials represent 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; see Chapter 3) initiatives to change people’s expectations for organizations

· Organizational Constraints.

· Organizations can constrain decision makers, creating deviations from the rational model. These constraints can take the form of:

· Performance Evaluation Systems. People are strongly influenced in their decision making by the criteria on which they are evaluated.

· Reward Systems. The reward system influences which choices are preferable in terms of a personal payoff.

· Formal Regulations. Rules and policies limit the decision maker’s choice of action.

· System-Imposed Time Constraints. Explicit deadlines create time pressures and often make it difficult to gather necessary information prior to making the decision.

· Historical Precedence. Commitments that have already been made constrain current options. The historic context of a decision limits available alternatives.

What About in Ethics in Decision Making?

· Three Ethical Decision Criteria:

· The first ethical yardstick is utilitarianism, in which decisions are made solely on the basis of their outcomes, ideally to provide the greatest good for the greatest number.

a. This view dominates business decision making. It is consistent with goals such as efficiency, productivity, and high profits.

· Another ethical criterion is to make decisions consistent with fundamental liberties and privileges, as set forth in documents such as the Bill of Rights.

· An emphasis on rights in decision making means respecting and protecting the basic rights of individuals, such as the right to privacy, free speech, and due process.

· This criterion protects whistleblowers when they reveal an organization’s unethical practices to the press or government agencies, using their right to free speech.

· 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.

· It justifies paying people the same wage for a given job regardless of performance differences and using seniority as the primary determination in layoff decisions.

· Choosing Between Criteria.

· Decision makers, particularly in for-profit organizations, feel comfortable with utilitarianism.

· The “best interests” of the organization and its stockholders can justify a lot of questionable actions, such as large layoffs.

· But many critics believe this perspective needs to change.

· Public concern about individual rights and social justice suggests managers should develop ethical standards based on nonutilitarian criteria.

· This presents a challenge because satisfying individual rights and social justice creates far more ambiguities than utilitarian effects on efficiency and profits.

· This helps explain why managers are increasingly criticized for their actions.

1) Raising prices, selling products with questionable effects on consumer health, closing down inefficient plants, laying off large numbers of employees, moving production overseas to cut costs, and similar decisions can be justified in utilitarian terms.

2) But that may no longer be the single measure by which good decisions are judged.

· Behavioral Ethics.

· Increasingly, researchers are turning to behavioral ethics—an area of study that analyzes how people behave when confronted with ethical dilemmas.

· Their research tells us that while ethical standards exist collectively in societies and organizations, and individually in the form of personal ethics, we do not always follow ethical standards promoted by our organizations, and we sometimes violate our own standards.

· Our ethical behavior varies widely from one situation to the next.

· Lying.

· Are you a liar? Many of us would not like to be labeled as a liar. But if a liar is merely someone who lies, we are all liars.

· We lie to ourselves, and we lie to others. We lie consciously and unconsciously. We tell big lies and create small deceptions.

· Lying is one of the top unethical activities we may indulge in daily, and it undermines all efforts toward sound decision making.

· The truth is that one of the reasons we lie is because lying is difficult for others to detect. In more than 200 studies, individuals correctly identified people who were lying only 47 percent of the time, which is less than random picking.

· Lying is deadly to decision making, whether we detect the lies or not. Managers— and organizations—simply cannot make good decisions when facts are misrepresented and people give false motives for their behaviors.

Creativity, Creative Decision Making and Innovation in Organizations

· Although the rational decision-making model will often improve decisions, a decision maker also needs creativity, the ability to produce novel and useful ideas.

· Novel ideas are different from what’s been done before but are appropriate for the problem.

· Although all aspects of organizational behavior have complexities, that is especially true for creativity.

· The three-stage model of creativity: the core of the model is creative behavior, which has both causes (predictions of creative behavior) and effects (outcomes of creative behavior).

· Creative Behavior. Creative behavior occurs in four steps, each of which leads to the next (Exhibit 6-4):

· Problem formulation. Any act of creativity begins with a problem that the behavior is designed to solve. Thus, problem formulation is defined as the stage of creative behavior in which we identify a problem or opportunity that requires a solution as yet unknown.

· Information gathering. Given a problem, the solution is rarely directly at hand. We need time to learn more and to process that information. Thus, information gathering is the stage of creative behavior when possible solutions to a problem incubate in an individual’s mind.

· Idea generation. Once we have collected the relevant information, it is time to translate knowledge into ideas. Thus, idea generation is the process of creative behavior in which we develop possible solutions to a problem from relevant information and knowledge.

1) Increasingly, idea generation is collaborative.

· Idea evaluation. Finally, it’s time to choose from the ideas we have generated. Thus, idea evaluation is the process of creative behavior in which we evaluate potential solutions to identify the best one.

1) Sometimes, the method of choosing can be innovative.

2) Generally, you want those who evaluate ideas to be different from those who generate them, to eliminate the obvious biases.

· Causes of Creative Behavior. Having defined creative behavior, the main stage in the three-stage model, we now look back to the causes of creativity: creative potential and creative environment.

· Creative Potential. Is there such a thing as a creative personality? Indeed. While creative genius — whether in science (Albert Einstein), art (Pablo Picasso), or business (Steve Jobs) — is scarce, most people have some of the characteristics shared by exceptionally creative people.

1) The more of these characteristics we have, the higher our creative potential.

· Intelligence and Creativity. Intelligence is related to creativity. Smart people are more creative because they are better at solving complex problems. However, intelligent people may also be more creative because they have greater working memory; that is, they can recall more information that is related to the task at hand.

· Personality and Creativity. The Big Five personality trait of openness to experience correlates with creativity, probably because open individuals are less conformist in action and more divergent in thinking.

(1) Other traits of creative people include proactive personality, self-confidence, risk taking, tolerance for ambiguity, and perseverance.

· Expertise and Creativity. Expertise is the foundation for all creative work and thus is the single most important predictor of creative potential.

1. People with larger social networks have greater exposure to diverse ideas and informal access to the expertise and resources of others.

· Ethics and Creativity. Although creativity is linked to many desirable individual characteristics, it is not correlated with ethicality.

1. People who cheat may actually be more creative than those who behave ethically, according to recent research.

2. It may be that dishonesty and creativity can both stem from a rule-breaking desire.

· Creative Environment. Most of us have creative potential we can learn to apply, but as important as creative potential is, by itself it is not enough.

1. We need to be in an environment where creative potential can be realized.

2. What environmental factors affect whether creative potential translates into creative behaviors?

a) First and perhaps most important is motivation. If you aren’t motivated to be creative, it is unlikely you will be. This link is true regardless of whether we are talking about student creativity or employee creativity.

b) It is also valuable to work in an environment that rewards and recognizes creative work. The organization should foster the free flow of ideas, including providing fair and constructive judgment.

(1) Freedom from excessive rules encourages creativity; employees should have the freedom to decide what work is to be done and how to do it.

· Creative Outcomes (Innovation). The final stage in our model of creativity is the outcome. Creative behavior does not always produce a creative or innovative outcome.

1. An employee might generate a creative idea and never share it. Management might reject a creative solution. Teams might squelch creative behaviors by isolating those who propose different ideas.

a) When people feel uncertain, their ability to see any idea as creative is blocked.

2. We can define creative outcomes as ideas or solutions judged to be novel and useful by relevant stakeholders.

a) Novelty itself does not generate a creative outcome if it isn’t useful.

b) Thus, “off-the-wall” solutions are creative only if they help solve the problem.

c) The usefulness of the problem might be self-evident, or it might be considered successful by stakeholders before the actual success can be known.

3. Creative ideas do not implement themselves; translating them into creative outcomes is a social process that requires utilizing other concepts addressed in this text, including power and politics, leadership, and motivation.

Summary

· Individuals base their behavior not on the way their external environment actually is but rather on what they see or believe it to be.

· An understanding of how people make decisions can be helpful for explaining and predicting their behavior.

· But few important decisions are simple or unambiguous enough for the rational model’s assumptions to apply.

· Thus, 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.

Implications for Managers

· Behavior follows perception, so to influence employee behavior at work, assess how employees 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.

· 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 decision-making model or to try to make your decisions appear rational. Adjust your decision approach to ensure compatibility with the organizational culture.

· Combine rational analysis with intuition. These are not conflicting approaches to decision making. By using both, you can 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.

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