6

Perception
and Individual
Decision Making
MyManagementLab

Source: Rex Features via AP Images.

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 The Pricetag for Creativity:
$30 Million. the Return: Priceless

N
icholas D’Aloisio is not your average London teen. Yahoo! recently
purchased his app Summly for $30 million, and at age 17, he is the
youngest member of the Forbes “30 Under 30” Games & Apps in-
novators. Personable and engaging, D’Aloisio is also perhaps not your average
techie. He is the ideal entrepreneur, able to turn his creativity into innovative
decision making and use his natural charisma to bring his ideas to the global
marketplace. D’Aloisio’s rare combination of creativity and personality makes
Learning
him priceless in the high-stakes Silicon Valley marketplace.
Objectives
D’Aloisio showed creative talent early, like many innovators. His mother
After studying this chapter,
Diane, a London lawyer, said, “I remember him creating 3D models on his you should be able to:
computer as a 10-year-old . . . we always knew Nicholas was technical and
talented.” D’Aloisio has always sought the cutting edge of his field and has 1 Define perception, and
explain the factors that
been quick to apply his creativity to designing new products. When Apple influence it.
launched its App Store in 2008, he wanted to work with the new platform 2 Explain attribution
even before Apple was ready. “I went into an Apple store with my dad and we theory, and list the
three determinants
asked one of the assistants how we did this [make an app], and they didn’t of attribution.
know what we were talking about,” he said.
3 Identify the shortcuts
D’Aloisio taught himself basic programming while he waited for the pub- individuals use in making
lic release of the app development process. In August 2008, he launched a judgments about others.

starter app, FingerMill, a treadmill for fingers. It made money the first day, 4 Explain the link between
perception and decision
providing early encouragement. D’Aloisio said, “So as a 12-year-old I was like, making.
‘This is awesome.’ ” He continued to innovate, even though some efforts were
5 Contrast the rational model
less successful. “But every time I did an app I learned more.” of decision making with
bounded rationality and
D’Aloisio’s learning, experience, and creativity led him to perceive a need
intuition.
for an innovative product that would meet a consumer need. At school
in 2011, D’Aloisio was “using Twitter a lot on my phone, and was realizing
6 Describe the common
decision biases or errors.
there was a massive gap between the link on the tweet and the full story. If 7 Explain how individual
you could come up with a summary layer to show in Twitter, that would be differences and
organizational constraints
awesome.” He developed an algorithm app called Trimit to condense news affect decision making.
articles into the space of an iPhone screen with an engaging design. “It helps
8 Contrast the three ethical
publishers reach out to a younger audience,” D’Aloisio says. “There is a gen- decision criteria.
eration of skimmers. It’s not that they don’t want to read in-depth content, 9 Define creativity, and
describe the three-stage
but they want to evaluate what the content is before they commit time.” model of creativity.
D’Aloisio went from technological innovator to marketable commodity
when his personality helped win him investors, including billionaire Li Ka Shing
of Hong Kong, actors Ashton Kutcher and Stephen Fry, Wendi Murdoch (wife of
media mogul Rupert Murdoch), and Yoko Ono. Zynga Inc. and SRI International
R&D helped bring the new version of Trimit, called Summly, online in ­November
2012. Then the young innovator caught the attention of CEO Marissa Mayer,
who was searching for spokespeople to boost Yahoo!’s tech image.
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 184 PART 2    The Individual

It seems Mayer wanted D’Aloisio’s creativity and perceptive decision-making

skills more than his latest innovation, because Yahoo! bought Summly in March
2013 with plans to shut it down immediately. What Yahoo! gets is D’Aloisio’s
presence, at least for a while, and only if Mayer makes an exception to Yahoo!’s
ban on working from home—because D’Aloisio has high school to finish and
then an Oxford philosophy degree to pursue. The $30 million teen is noncom-
mittal. He thinks he will work for Yahoo! a few years but said, “I have no limits on
time. I want to go in with open eyes and try to innovate.”

Sources: A. Efrati, “At 17, App Builder Rockets to Riches from Yahoo Deal,” The Wall Street Journal
(March 26, 2013), P. B1; E. Samer, “Summly Creator Nick D’Aloisio: ‘I Try to Maintain a Level of
­Humbleness, ’ ” The Guardian (March 29, 2013), [Link]/technology/2013/mar/29/
summly-creator-nick-daloisio-interview; and B. Stetler, “He Has Millions and a New Job at Yahoo.
And Soon He’ll Be 18,” The New York Times (March 26, 2013), pp. A1, A3.

T
he case of Nicholas D’Aloisio illustrates how important—and perhaps
rare—an individual’s creativity can be to an organization. The interper-
sonal skills of some innovators like D’Aloisio, who is described as humble
and charismatic, can help bring ideas to the marketplace. As we will see later in
the chapter, the creativity of individuals can lead to true innovation that solves
problems. To better understand, we first explore our perceptions and how they
affect our decision-making process. In the following Self-Assessment Library,
consider one perception—that of appropriate gender roles.

What Are My Gender Role Perceptions?

S A L
In the Self-Assessment Library (available in MyManagementLab), take assess-
SELF-ASSESSMENT LIBRARY ment IV.C.2 (What Are My Gender Role Perceptions?) and answer the following
questions.
1. Did you score as high as you thought you would?
2. Do you think a problem with measures like this is that people aren’t honest
in responding?
3. If others, such as friends, classmates, and family members, rated you, would
they rate you differently? Why or why not?
4. Research has shown that people’s gender role perceptions are becoming less
traditional over time. Why do you suppose this is so?

What Is Perception?

1 Define perception, and

­explain the factors that
Perception is a process by which individuals organize and interpret sensory im-
pressions in order to give meaning to their environment. What we perceive can
­influence it. be substantially different from objective reality. Perception is important to OB
because people’s behavior is based on their perception of what reality is, not
on reality itself. The world as it is perceived is the world that is behaviorally important.

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 Perception and Individual Decision Making    CHAPTER 6 185

Exhibit 6-1 Factors That Influence Perception

Factors in the perceiver

• Attitudes
• Motives
• Interests
• Experience
• Expectations

Factors in the situation

• Time
Perception
• Work setting
• Social setting

Factors in the target

• Novelty
• Motion
• Sounds
• Size
• Background
• Proximity
• Similarity

perception A process by which Factors That Influence Perception

individuals organize and ­interpret
their sensory impressions in A number of factors shape and sometimes distort perception. These factors can
order to give meaning to their reside in the perceiver; in the object, or target, being perceived; or in the situation
environment. in which the perception is made (see Exhibit 6-1).
When you look at a target, your interpretation of what you see is influenced
by your personal characteristics—attitudes, personality, motives, interests, past
experiences, and expectations. For instance, if you expect police officers to be
authoritative, you may perceive them as such, regardless of their actual traits.
Characteristics of the target also affect what we perceive. Loud people are
more likely to be noticed than quiet ones. So, too, are extremely attractive or un-
attractive individuals. Because we don’t look at targets in isolation, the relation-
ship of a target to its background influences perception, as does our tendency to
group close things and similar things together. We often perceive women, men,
Whites, African Americans, Asians, or members of any other group that has
clearly distinguishable characteristics as alike in other, unrelated ways as well.
Context matters too. The time at which we see an object or event can influence
our attention, as can location, light, heat, or situational factors. For instance, at a
club on Saturday night you may not notice someone “decked out.” Yet that same
person so attired for your Monday morning management class would certainly
catch your attention. Neither the perceiver nor the target has changed between
Saturday night and Monday morning, but the situation is different.

Person Perception: Making Judgments About Others

Now we turn to the application of perception concepts most relevant to OB—

person perception, or the perceptions people form about each other.

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 186 PART 2    The Individual

Attribution Theory
2 Explain attribution
theory, and list the three
Nonliving objects such as desks, machines, and buildings are subject to laws of
nature, but they have no beliefs, motives, or intentions. People do. When we
­determinants of attribution. observe people, we attempt to explain their behavior. Our perception and judg-
ment of a person’s actions are influenced by the assumptions we make about
that person’s state of mind.
attribution theory An attempt to Attribution theory tries to explain the ways we judge people differently,
determine whether an individual’s depending on the meaning we attribute to a behavior.1 It suggests that when
behavior is internally or externally we observe an individual’s behavior, we attempt to determine whether it was
caused.
internally or externally caused. That determination depends largely on three
factors: (1) distinctiveness, (2) consensus, and (3) consistency. Let’s clarify the
differences between internal and external causation, and then we’ll discuss
the determining factors.
Internally caused behaviors are those an observer believes to be under the
personal behavioral control of another individual. Externally caused behavior
is what we imagine the situation forced the individual to do. If one of your em-
ployees is late for work, you might attribute that to his overnight partying and
subsequent oversleeping. This is an internal attribution. But if you attribute
lateness to an automobile accident that tied up traffic, you are making an exter-
nal attribution.
Now let’s discuss the three determining factors. Distinctiveness refers to
whether an individual displays different behaviors in different situations. Is the
employee who arrives late today also one who regularly “blows off” commit-
ments? What we want to know is whether this behavior is unusual. If it is, we
are likely to give it an external attribution. If it’s not, we will probably judge the
behavior to be internal.
If everyone who faces a similar situation responds in the same way, we can
say the behavior shows consensus. The behavior of our tardy employee meets
this criterion if all employees who took the same route were also late. From an
­attribution perspective, if consensus is high, you would probably give an exter-
nal attribution to the employee’s tardiness, whereas if other employees who
took the same route made it to work on time, you would attribute his lateness
to an internal cause.
Finally, an observer looks for consistency in a person’s actions. Does the per-
son respond the same way over time? 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 three times a week. The more con-
sistent the behavior, the more we are inclined to attribute it to internal causes.
Exhibit 6-2 summarizes the key elements in attribution theory. It tells us, for
instance, that if an employee, Katelyn, generally performs at about the same
level on related tasks as she does on her current task (low distinctiveness), other
employees frequently perform differently—better or worse—than Katelyn on
that task (low consensus), and Katelyn’s performance on this current task is con-
sistent over time (high consistency), anyone judging Katelyn’s work will likely
hold her primarily responsible for her task performance (internal attribution).
One of the findings from attribution theory research is that errors or biases
distort attributions. When we make judgments about the behavior of other peo-
ple, we tend to underestimate the influence of external factors and overestimate
fundamental attribution error The the influence of internal or personal factors.2 This fundamental attribution error
tendency to underestimate the can explain why a sales manager is prone to attribute the poor performance
influence of external factors and of her sales agents to laziness rather than to a competitor’s innovative product
overestimate the influence of internal
factors when making judgments line. Individuals and organizations also tend to attribute their own successes
about the behavior of others. to internal factors such as ability or effort, while blaming failure on external
factors such as bad luck or unproductive co-workers. People also tend to attri-
bute ambiguous information as relatively flattering, accept positive feedback,

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 Perception and Individual Decision Making    CHAPTER 6 187

Exhibit 6-2 Attribution Theory

Attribution
Observation Interpretation
of cause

High
External
Distinctiveness
Low
Internal

High
External
Individual behavior Consensus
Low
Internal

High
Internal
Consistency
Low
External

self-serving bias The tendency and reject negative feedback. This is self-serving bias.3 Researchers asked one
for individuals to attribute their group of people, “If someone sues you and you win the case, should he pay your
own successes to internal factors
legal costs?” Eighty-five percent responded “yes.” Another group was asked, “If
and put the blame for failures on
­external factors. you sue someone and lose the case, should you pay his costs?” Only 44 percent
­answered “yes.”4
The evidence on cultural differences in perception is mixed, but most sug-
gests there are differences across cultures in the attributions people make.5
One study found Korean managers were less prone to self-serving bias—they
tended to accept responsibility for group failure “because I was not a capable
leader” instead of attributing failure to group members.6 On the other hand,
Asian managers are more likely to blame institutions or whole organizations,
whereas Western observers believe individual managers should get blame or
praise.7 That probably explains why U.S. newspapers feature the names of indi-
vidual executives when firms do poorly, whereas Asian media cover how the firm
as a whole has failed. This tendency to make group-based attributions also ex-
plains why individuals from Asian cultures are more likely to make group-based
stereotypes.8 Attribution theory was developed based on experiments with U.S.
and western European workers. But these studies suggest caution in making
attribution theory predictions in non-Western societies, especially in countries
with strong collectivist traditions.
Differences in attribution tendencies don’t mean the basic concepts of attri-
bution completely differ across cultures, though. Self-serving biases may be less
common in East Asian cultures, but evidence suggests they still operate across
cultures.9 Studies indicate Chinese managers assess blame for mistakes using
the same distinctiveness, consensus, and consistency cues Western managers
use.10 They also become angry and punish those deemed responsible for failure,
a reaction shown in many studies of Western managers. This means the basic
process of attribution applies across cultures, but that it takes more evidence for
Asian managers to conclude someone else should be blamed.

Common Shortcuts in Judging Others

3 Identify the shortcuts
­individuals use in making
The shortcuts for judging others often allow us to make accurate perceptions
rapidly and provide valid data for making predictions. However, they can and
judgments about others. do sometimes result in significant distortions.

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 188 PART 2    The Individual

selective perception The tendency Selective Perception Any characteristic that makes a person, an object, or an
to selectively interpret what one event stand out will increase the probability we will perceive it. Why? Because it
sees on the basis of one’s interests,
background, experience, and
is impossible for us to assimilate everything we see; we can take in only certain
attitudes. stimuli. Thus, you are more likely to notice cars like your own, and your boss
may reprimand some people and not others doing the same thing. Because we
can’t observe everything going on about us, we use selective perception. But
we don’t choose randomly: We select according to our interests, background,
experience, and attitudes. Selective perception allows us to speed-read others,
but not without the risk of drawing an inaccurate picture. Seeing what we want
to see, we can draw unwarranted conclusions from an ambiguous situation.
We find an example of selective perception in financial analysis. From 2007
to 2009, the U.S. stock market lost roughly half its value. Yet during that time,
analysts’ sell ratings (typically, analysts rate a company’s stock with three rec-
ommendations: buy, sell, or hold) actually decreased slightly. There are several
reasons analysts are reluctant to put sell ratings on stocks; one is selective per-
ception. When prices are going down, analysts often attend to the past (saying
the stock is a bargain relative to its prior price), rather than the future (the
downward trend may continue). As one money manager noted, “Each time
the market went down was a new opportunity to buy the stock even cheaper.”11
True, but it shows the dangers of selective perception: By looking only at the
past price, analysts were relying on a false reference point and failing to recog-
nize that what has fallen can fall further still.

Halo Effect When we draw an impression about an individual on the basis of

halo effect The tendency to draw a single characteristic, such as intelligence, sociability, or appearance, a halo
a general impression about an effect is operating.12 If you’re a critic of President Obama, try listing ten things
individual on the basis of a single you admire about him. If you’re an admirer, try listing ten things you dislike
characteristic.
about him. No matter which describes you, odds are you won’t find this an easy
exercise! That’s the halo effect: Our general views contaminate our specific ones.
The halo effect was confirmed in a classic study in which subjects were given
a list of traits such as intelligent, skillful, practical, industrious, determined, and
warm and asked to evaluate the person to whom those traits applied.13 Subjects
judged the person to be wise, humorous, popular, and imaginative. When the
same list substituted “cold” for “warm,” a completely different picture emerged.
Clearly, the subjects were allowing a single trait to influence their overall impres-
sion of the person they were judging.

Contrast Effects An old adage among entertainers is “Never follow an act that
has kids or animals in it.” Why? Audiences love children and animals so much
contrast effect Evaluation of a that you’ll look bad in comparison. This example demonstrates how a contrast
person’s characteristics that is effect can distort perceptions. We don’t evaluate a person in isolation. Our
­affected by comparisons with other reaction is influenced by other recent encounters.
people recently encountered who
rank higher or lower on the same In a series of job interviews, for instance, interviewers can make distortions
characteristics. in any given candidate’s evaluation as a result of his or her place in the inter-
view schedule. A candidate is likely to receive a more favorable evaluation if
preceded by mediocre applicants and a less favorable evaluation if preceded by
strong applicants.

Stereotyping When we judge someone on the basis of our perception of the

stereotyping Judging someone group to which he or she belongs, we are stereotyping.14
on the basis of one’s perception We deal with the unmanageable number of stimuli of our complex world by
of the group to which that person using heuristics or stereotypes to make decisions quickly. For example, it does
belongs.
make sense to assume that Allison from finance will be able to help you figure
out a forecasting problem. The problem occurs when we generalize inaccurately

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 Perception and Individual Decision Making    CHAPTER 6 189

Photo 6-1 These young women are

taking a running test for a police
officer job in Peshawar, Pakistan.
Women in many countries report
that it’s difficult for them to enter
the profession because gender
stereotyping inaccurately generalizes
that women lack the mental,
physical, and emotional strength
required to do police work.

Source: Pakistan Press International Photo/Newscom.

or too much. In organizations, we frequently hear comments that represent ste-
reotypes based on gender, age, race, religion, ethnicity, and even weight (see
Chapter 2):15 “Men aren’t interested in child care,” “Older workers can’t learn
new skills,” “Asian immigrants are hardworking and conscientious.” Research
suggests stereotypes operate emotionally and often below the level of conscious
awareness, making them particularly hard to challenge and change.16
Stereotypes can be deeply ingrained and powerful enough to influence life-
and-death decisions. 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.17 Another study
found that students who read scenarios describing leaders tended to assign
higher scores for leadership potential and effective leadership to Whites than
to minorities even though the content of the scenarios was equivalent, support-
ing the idea of a stereotype of Whites as better leaders.18
One problem of stereotypes is that they are widespread generalizations,
though they may not contain a shred of truth when applied to a particular
person or situation. We have to monitor ourselves to make sure we’re not un-
fairly applying a stereotype in our evaluations and decisions. Stereotypes are an
­example of the warning, “The more useful, the more danger from misuse.”

Specific Applications of Shortcuts in Organizations

People in organizations are always judging each other. Managers must appraise
their employees’ performances. We evaluate how much effort our co-workers are
putting into their jobs. Team members immediately “size up” a new person. In
many cases, our judgments have important consequences for the organization.
Let’s look at the most obvious applications.

Employment Interview Few people are hired without an interview. But

interviewers make perceptual judgments that are often inaccurate19 and draw
early impressions that quickly become entrenched. Research shows we form

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 190 PART 2    The Individual

Myth or Science?

“All Stereotypes Are Negative”

T
his statement is false. Positive no stereotypic information. The under- solidified other, negative stereotypes
stereotypes exist just as much as graduates in all three groups then shot because any stereotype tends to
negative ones. free throws while observers watched. reinforce group-based differences,
A study of Princeton University stu- The people who performed the worst whether positive or negative.
dents shows, for example, that even were those in the negative stereo- Stereotypes are understandable. To
today we believe Germans are better type condition (Black undergraduates function, we need shortcuts. This short-
workers, Italians and African Americans who were told Whites were better cut, however, runs both ways. Because
are more loyal, Jews and Chinese are and White undergraduates who were stereotypes are socially learned, we
more intelligent, and Japanese and told Blacks were better). However, the need to be vigilant about not accept-
English are more courteous. What is positive stereotype group (Black under- ing or propagating them among our
surprising is that positive stereotypes graduates who were told Blacks were co-workers and peers.
are not always positive. better and White undergraduates who
Men are commonly believed to have were told Whites were better) also
higher math ability than women. One did not perform well. The best perfor- Sources: A. C. Kay, M. V. Day, M. P. Zanna,
and A. D. Nussbaum, “The Insidious
study shows that when this stereotype mance was turned in by those in the no (and Ironic) Effects of Positive Stereotypes,”
is activated before men take a math stereotypic information group. In short, Journal of Experimental Social Psychol-
test, their performance on the test ac- we are more likely to “choke” when we ogy 49 (2013), pp. 287–291; J. O. Sly and
S. Cheryan, “When Compliments Fail to Flat-
tually goes down. Another study found identify with positive stereotypes be- ter: American Individualism and Responses
that the belief that white men are bet- cause they induce pressure to perform to Positive Stereotypes,” Journal of Personality
ter at science and math than women or at the stereotypical level. and Social Psychology 104 (2013), pp. 87–102;
M. J. Tagler, “Choking Under the Pressure
minorities caused white men to leave Choking is not the only negative of a Positive Stereotype: Gender Identifi-
science, technology, engineering, and thing about positive stereotypes. Re- cation and Self-Consciousness Moderate
math majors. Finally, a study used search revealed that when women or Men’s Math Test Performance,” Journal of
Social Psychology 152 (2012), pp. 401–416;
basketball to illustrate the complexity Asian Americans heard positive stereo- M. A. Beasley and M. J. Fischer, “Why They
of stereotypes. Researchers provided types about themselves (“women are Leave: The Impact of Stereotype Threat on
evidence to one group of undergradu- nurturing”; “Asians are good at math”), the Attrition of Women and Minorities from
Science, Math and Engineering Majors,”
ates that Whites were better free they felt depersonalized and reacted Social Psychology of Education 15 (2012),
throw shooters than Blacks. Another negatively to the individual express- pp. 427–448; and A. Krendl, I. Gainsburg, and
group was provided evidence that ing the positive stereotype. Another N. Ambady, “The Effects of Stereotypes and
Observer Pressure on Athletic Performance,”
Blacks were better free throw shooters study showed that positive stereo- Journal of Sport & Exercise Psychology
than Whites. A third group was given types about African Americans actually 34 (2012), pp. 3–15.

impressions of others within a tenth of a second, based on our first glance.20

Recent research indicates that our individual intuition about a job candidate
is not reliable in predicting job performance, but that collecting input from
multiple independent evaluators can be predictive.21 Most interviewers’
decisions change very little after the first 4 or 5 minutes of an interview. As a
result, information elicited early in the interview carries greater weight than
does information elicited later, and a “good applicant” is probably characterized
self-fulfilling prophecy A situa- more by the absence of unfavorable characteristics than by the presence of
tion in which a person inaccurately favorable ones.
perceives a second person, and
the resulting expectations cause
the second person to behave in
Performance Expectations People attempt to validate their perceptions of
ways consistent with the original reality even when these are faulty.22 The terms self-fulfilling prophecy and
perception. Pygmalion effect describe how an individual’s behavior is determined by others’

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 Perception and Individual Decision Making    CHAPTER 6 191

expectations. If a manager expects big things from her people, they’re not likely
to let her down. Similarly, if she expects only minimal performance, they’ll likely
meet those low expectations. Expectations become reality. The self-fulfilling
prophecy has been found to affect the performance of students, soldiers, and
even accountants.23

Performance Evaluation We’ll discuss performance evaluations in Chapter 17,

but note that they very much depend on the perceptual process.24 An employee’s
future is closely tied to the appraisal—promotion, pay raises, and continuation
of employment are among the outcomes. Although the appraisal can be
objective (for example, a sales-person is appraised on how many dollars of sales
he generates in his territory), many jobs are evaluated subjectively. Subjective
evaluations, though often necessary, are problematic because of the errors
we’ve discussed—selective perception, contrast effects, halo effects, and so on.
Sometimes performance ratings say as much about the evaluator as they do
about the employee!

The Link Between Perception and Individual Decision Making

4 Explain the link between

perception and decision
Individuals make decisions, choices from among two or more alternatives. Top
managers determine their organization’s goals, what products or services to
making. offer, how best to finance operations, or where to locate a new manufactur-
ing plant. Middle- and lower-level managers set production schedules, select
decisions Choices made from new employees, and decide how to allocate pay raises. Organizations have
among two or more alternatives.
begun empowering their nonmanagerial employees with decision-making au-
thority historically reserved for managers alone. Individual decision making
is thus an important part of organizational behavior. But the way individuals
make decisions and the quality of their choices are largely influenced by their
perceptions.
problem A discrepancy between Decision making occurs as a reaction to a problem.25 That is, a discrepancy
the current state of affairs and exists between the current state of affairs and some desired state, requiring us
some desired state. to consider alternative courses of action. If your car breaks down and you rely
on it to get to work, you have a problem that requires a decision on your part.
­Unfortunately, most problems don’t come neatly labeled “problem.” One per-
son’s problem is another person’s satisfactory state of affairs. One manager may
view her division’s 2 percent decline in quarterly sales to be a serious problem
requiring immediate action on her part. Her counterpart in another division,
who also had a 2 percent sales decrease, might consider that quite acceptable.
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. We typically
receive data from multiple sources we need to screen, process, and interpret.
Which data are relevant to the decision, and which are not? Our perceptions
will answer that question. We also need to develop alternatives and evaluate
their strengths and weaknesses. Again, our perceptual process will affect the
final outcome. Throughout the decision-making process, perceptual errors
­
­often surface that can bias analyses and conclusions.

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Photo 6-2 Vanessa Cunningham

is the leader of a pilot program
­planning team at Cummins that is
turning individual cubicle workspaces
into new collaborative work areas
shown here. She uses employee feed-
back about their perceptions of the
old versus new work areas in making
decisions about the company’s future
office design.

Source: AP Photo/The Republic, Joe Harpring.

Decision Making in Organizations

5 Contrast the rational model

of decision making with
Business schools train students to follow rational decision-making models.
While models have merit, they don’t always describe how people make deci-
bounded rationality and sions. OB improves the way we make decisions in organizations by addressing
intuition. the decision-making errors people commit in addition to the perception errors
we’ve discussed. Next we describe these errors, beginning with a brief overview
of the rational decision-making model.

The Rational Model, Bounded Rationality, and Intuition

In OB, there are generally accepted constructs of decision making each of us
employs to make determinations: rational decision making, bounded rationality,
and intuition. Though their processes outwardly make sense, they may not lead
rational Characterized by making to the most accurate (or best) decisions. More importantly, there are times when
consistent, value-maximizing choices
within specified constraints. one strategy may lead to a better outcome than another in a given situation.

rational decision-making model Rational Decision Making We often think the best decision maker is rational
A decision-making model that
describes how individuals should and makes consistent, value-maximizing choices within specified constraints.26
behave in order to maximize some These decisions follow a six-step rational decision-making model.27 The six steps
outcome. are listed in Exhibit 6-3.

Exhibit 6-3 Steps in the Rational Decision-Making Model

1. Define the problem.

2. Identify the decision criteria.
3. Allocate weights to the criteria.
4. Develop the alternatives.
5. Evaluate the alternatives.
6. Select the best alternative.

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The rational decision-making model assumes that 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.28 Most decisions 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 alter-
native. As one expert in decision making put it, “Most significant decisions are
made by judgment, rather than by a defined prescriptive model.”29 People are
remarkably unaware of making suboptimal decisions.30

Bounded Rationality Our limited information-processing capability makes

it impossible to assimilate all the information necessary to optimize.31 Most
people respond to a complex problem by reducing it to a level they can readily
understand. Many problems don’t have an optimal solution because they are
too complicated to fit the rational decision-making model, so people satisfice;
they seek solutions that are satisfactory and sufficient.
When you considered which college to attend, did you look at every viable
alternative? Did you carefully identify all the criteria that were important in
your decision? Did you evaluate each alternative against the criteria in order
to find the optimal college? The answers are probably “no.” Don’t feel bad; few
people make their college choice this way. Instead of optimizing, you probably
satisficed.
Because the human mind cannot formulate and solve complex problems
bounded rationality A process of with full rationality, we operate within the confines of bounded rationality. We
making decisions by constructing construct simplified models that extract the essential features from problems
simplified models that extract without capturing all their complexity.32 We can then behave rationally within
the essential features from
problems without capturing the limits of the simple model.
all their complexity. How does bounded rationality work for the typical individual? Once we’ve
identified a problem, we begin to search for criteria and alternatives. The crite-
ria are unlikely to be exhaustive. We identify alternatives that are highly visible
and that usually represent familiar criteria and tried-and-true solutions. Next,
we begin reviewing the alternatives, focusing on choices that differ little from

Photo 6-3 Isao Moriyasu is presi-

dent of DeNA, a Japanese Internet
firm focused on social game plat-
Source: REUTERS/Yuriko Nakao.

forms and social games. Shown here

with the firm’s new “comm” app,
Moriyasu operates within the con-
fines of bounded rationality in
making complex decisions about
acquiring other firms, expanding
globally, and rapidly developing
new services.

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 194 PART 2    The Individual

the current state until we identify one that is “good enough”—that meets an
acceptable level of performance. Thus ends our search. So the solution repre-
sents a satisficing choice—the first acceptable one we encounter—rather than an
optimal one.
Satisficing is not always bad—a simple process may frequently be more sen-
sible than the traditional rational decision-making model.33 To use the rational
model, 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 might be your best option. Returning to your college choice, would
it be best to fly around the country to visit dozens of potential campuses and
pay application fees for all? That depends: Can you know what type of college
is best for you when in high school, or is there a lot of unknown information
about how your interests are going to develop? It might be smarter to satisfice by
finding a few colleges that match most of your preferences and then focus your
attention on differentiating between those.

intuitive decision making An Intuition Perhaps the least rational way of making decisions is intuitive
­ nconscious process created out
u decision making, an unconscious process created from distilled experience.34
of distilled experience. Intuitive decision making occurs outside conscious thought; relies on holistic
associations, or links between disparate pieces of information; is fast; and is
affectively charged, meaning it engages the emotions.35
While intuition isn’t rational, it isn’t necessarily wrong. Nor does it always
contradict rational analysis; the two can complement each other. Nor is intu-
ition superstition, or the product of some magical or paranormal sixth sense.
Intuition is complex and based on years of experience and learning.
Does intuition help effective decision making? Researchers are divided, but
most experts are skeptical, in part because intuition is hard to measure and
analyze. Probably the best advice from one expert is: “Intuition can be very
useful as a way of setting up a hypothesis but is unacceptable as ‘proof,’” Use
hunches derived from your experience to speculate, yes, but always make sure
to test those hunches with objective data and rational, dispassionate analysis.36

Common Biases and Errors in Decision Making

6 Describe the common
­decision biases or errors.
Decision makers engage in bounded rationality, but they also allow systematic
biases and errors to creep into their judgments.37 To minimize effort and avoid
trade-offs, people tend to rely too heavily on experience, impulses, gut feelings,
and convenient rules of thumb. Shortcuts can be helpful; however, they can
distort rationality. Following are the most common biases in decision making.
Exhibit 6-4 provides some suggestions for how to avoid falling into these biases
and errors.

Overconfidence Bias Recent research continues to conclude that we tend to be

overconfident about our abilities and about the abilities of others; also, that we
are usually not aware of this bias.38 It’s been said that “no problem in judgment
and decision making is more prevalent and more potentially catastrophic than
overconfidence.”39 When we’re given factual questions and asked to judge the
probability that our answers are correct, we tend to be overly optimistic. When
people say they’re 90 percent confident about the range a certain number might
take, their estimated ranges contain the correct answer only about 50 percent of
the time—and experts are no more accurate in setting up confidence intervals
than are novices.40

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Exhibit 6-4 Reducing Biases and Errors

Focus on Goals. Without goals, you can’t be rational, you don’t know what information you
need, you don’t know which information is relevant and which is irrelevant, you’ll find it
difficult to choose between alternatives, and you’re far more likely to experience regret
over the choices you make. Clear goals make decision making easier and help you eliminate
options that are inconsistent with your interests.
Look for Information That Disconfirms Your Beliefs. One of the most effective means for
counteracting overconfidence and the confirmation and hindsight biases is to actively look
for information that contradicts your beliefs and assumptions. When we overtly consider
various ways we could be wrong, we challenge our tendencies to think we’re smarter than
we actually are.

Don’t Try to Create Meaning out of Random Events. The educated mind has been trained
to look for cause-and-effect relationships. When something happens, we ask why. And
when we can’t find reasons, we often invent them. You have to accept that there are events
in life that are outside your control. Ask yourself if patterns can be meaningfully explained
or whether they are merely coincidence. Don’t attempt to create meaning out of
coincidence.

Increase Your Options. No matter how many options you’ve identified, your final choice can
be no better than the best of the option set you’ve selected. This argues for increasing your
decision alternatives and for using creativity in developing a wide range of diverse choices.
The more alternatives you can generate, and the more diverse those alternatives, the
greater your chance of finding an outstanding one.

Source: S. P. Robbins, Decide & Conquer: Making Winning Decisions and Taking Control of Your Life (Upper Saddle River, NJ: Financial
Times/Prentice Hall, 2004), pp. 164–168.

Individuals whose intellectual and interpersonal abilities are weakest are most
likely to overestimate their performance and ability.41 There’s also a negative
relationship between entrepreneurs’ optimism and performance of their new
ventures: the more optimistic, the less successful.42 The tendency to be too con-
fident about their ideas might keep some from planning how to avoid problems
that arise.
Investor overconfidence operates in a variety of ways.43 Finance professor
Terrance Odean says, “People think they know more than they do, and it costs
them.” Investors, especially novices, overestimate not just their skill in process-
ing information, but also the quality of the information they’re working with.
Test your own confidence level with investments: compare the long-term re-
turns of your stock market picks relative to index funds. You’ll find an overall
index performs as well as, or better than, hand-picked stocks. The main reason
many people resist index funds is that they think they’re better at picking stocks
than the average person, but most investors will only do as well as or only slightly
better than the market.

anchoring bias A tendency to Anchoring Bias Anchoring bias is a tendency to fixate on initial information and
f­ ixate on initial information, from fail to adequately adjust for subsequent information.44 As we discussed earlier
which one then fails to adequately in the chapter in relationship to employment interviews, our mind appears to
adjust for subsequent information.
give a disproportionate amount of emphasis to the first information it receives.
Anchors are widely used by people in professions in which persuasion skills are
important—advertising, management, politics, real estate, and law. Assume two
pilots—Jason and Glenda—have been laid off, and after an extensive search
their best offers are from Delta Airlines. Each would earn the average annual
pay of Delta’s narrow-body jet pilots: $126,000. Jason was previously a pilot for
Pinnacle, a regional airline where the average annual salary is $82,000. Glenda

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was a pilot for FedEx, where the average annual salary is $200,000. Which pilot
is most likely to accept, or be happiest with, Delta’s offer? Obviously Jason,
because he is anchored by the lower salary.45
Any time a negotiation takes place, so does anchoring. When a prospec-
tive employer asks how much you made in your prior job, your answer typically
anchors the employer’s offer. (Remember this when you negotiate your salary,
but set the anchor only as high as you truthfully can.) The more precise your
anchor, the smaller the adjustment. Some research suggests people think of
making an adjustment after an anchor is set as rounding off a number: If you
suggest a salary of $55,000, your boss will consider $50,000 to $60,000 a reason-
able range for negotiation, but if you mention $55,650, your boss is more likely
to consider $55,000 to $56,000 the range of likely values.46

Confirmation Bias The rational decision-making process assumes we objectively

confirmation bias The tendency gather information. But we don’t. We selectively gather it. Confirmation bias
to seek out information that represents a case of selective perception: we seek out information that reaffirms
reaffirms past choices and to our past choices, and we discount information that contradicts them.47 We
discount information that
contradicts past judgments. also tend to accept at face value information that confirms our preconceived
views, while we are skeptical of information that challenges them. Therefore,
the information we gather is typically biased toward supporting views we
already hold. We even tend to seek sources most likely to tell us what we want
to hear, and we give too much weight to supporting information and too little
to contradictory. We are most prone to confirmation bias when we believe we
have good information and strongly hold our opinions. Fortunately, those who
feel there is a strong need to be accurate in making a decision are less prone to
confirmation bias.

Availability Bias More people fear flying than fear driving in a car. But if flying
on a commercial airline were as dangerous as driving, the equivalent of two 747s
filled to capacity would crash every week, killing all aboard. Because the media
give more attention to air accidents, we tend to overstate the risk of flying and
understate the risk of driving.
availability bias The tendency for Availability bias is our tendency to base judgments on information readily
people to base their judgments on available. Recent research indicates that a combination of readily available in-
information that is readily available formation and our previous direct experience with similar information is par-
to them.
ticularly impactful to our decision making. Events that evoke emotions, that
are particularly vivid, or that are more recent tend to be more available in our
memory, leading us to overestimate the chances of unlikely events such as being
in an airplane crash, suffering complications from medical treatment, or get-
ting fired.48 Availability bias can also explain why managers give more weight in
performance appraisals to recent employee behaviors than to behaviors of 6 or
9 months earlier, or why credit-rating agencies such as Moody’s or Standard &
Poor’s may issue overly positive ratings by relying on information presented by
debt issuers, who have an incentive to offer data favorable to their case.49

Escalation of Commitment Another distortion that creeps into decisions is a

tendency to escalate commitment, often for increasingly nonrational reasons.50
escalation of commitment An Escalation of commitment refers to our staying with a decision even if there is
i­ncreased commitment to a clear evidence it’s wrong. Consider a friend who has been dating someone for
­previous decision in spite of several years. Although he admits things aren’t going too well, he says he is still
­negative information.
going to marry her. His justification: “I have a lot invested in the relationship!”
When is escalation most likely to occur? Evidence indicates it occurs when
individuals view themselves as responsible for the outcome. The fear of personal
failure even biases the way we search for and evaluate information so that we

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choose only information that supports our dedication. We might, for example,
weight opinions in favor of reinvestment as more credible than opinions for
divestment.51
A recent meta-analysis revealed some interesting findings about what causes
us to escalate our commitment after initial failure. First, it doesn’t appear to
matter whether we chose the failing course of action or it was assigned to us—
we feel responsible and escalate in either case. Second, the sharing of decision
authority—such as when others review the choice we made—can lead to higher
escalation because the original decision is more public (thus individuals feel a
stronger need to justify the original decision by continuing). Finally, awareness
of sunk costs associated with the decision reduces escalation when individuals
feel responsible (they now have an “escape clause”).52

Randomness Error 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
randomness error The tendency the randomness error.
of individuals to believe that they Decision making suffers when we try to create meaning in random events,
can predict the outcome of random particularly when we turn imaginary patterns into superstitions.53 These can be
events.
completely contrived (“I never make important decisions on Friday the 13th”)
or they can evolve from a reinforced past pattern of behavior (Tiger Woods
often wears a red shirt during a golf tournament’s final round because he won
many junior tournaments wearing red shirts). Decisions based on random oc-
currences can handicap us when they affect our judgment or bias our major
decisions.

Risk Aversion Mathematically, we should find a 50–50 flip of the coin for $100
to be worth as much as a sure promise of $50. After all, the expected value of the
gamble over a number of trials is $50. However, nearly everyone but committed
gamblers would rather have the sure thing than a risky prospect.54 For many
people, a 50–50 flip of a coin even for $200 might not be worth as much as a
sure promise of $50, even though the gamble is mathematically worth twice as
risk aversion The tendency to much! This tendency to prefer a sure thing over a risky outcome is risk aversion.
prefer a sure gain of a moderate Risk aversion has important implications. To offset the risks inherent in a
amount over a riskier outcome, commission-based wage, companies pay commissioned employees considerably
even if the riskier outcome might
have a higher expected payoff. more than they do those on straight salaries. Risk-averse employees will stick
with the established way of doing their jobs, rather than taking a chance on
innovative methods. Sticking with a strategy that has worked in the past mini-
mizes risk, but it will lead to stagnation. Ambitious people with power that can
be taken away (most managers) appear to be especially risk averse, perhaps be-
cause they don’t want to lose on a gamble everything they’ve worked so hard to
achieve.55 CEOs at risk of termination are exceptionally risk averse, even when
a riskier investment strategy is in their firms’ best interests.56
Risk preference is sometimes reversed: People prefer to take chances when
trying to prevent a negative outcome.57 They would rather take a 50–50 gamble
on losing $100 than accept the certain loss of $50. Thus they will risk losing a lot
of money at trial rather than settle out of court. 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. Stressful situations can make risk prefer-
ences stronger. People will more likely engage in risk-seeking behavior for nega-
tive outcomes, and risk-averse behavior for positive outcomes, when under stress.58
hindsight bias The tendency to
believe falsely, after an outcome of
an event is actually known, that one Hindsight Bias Hindsight bias is the tendency to believe falsely, after the
would have accurately predicted outcome is known, that we would have accurately predicted it.59 When we have
that outcome. feedback on the outcome, we seem good at concluding it was obvious.

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For instance, the home video rental industry collapsed as online distribu-
tion outlets ate away at the market.60 Hollywood Video declared bankruptcy in
May 2010 and began liquidating its assets; Blockbuster filed for bankruptcy in
September 2010. Some have suggested that if these organizations had leveraged
their brand and distribution resources effectively, developed web-based delivery
sooner, as Netflix did, and added low-cost distribution in grocery and conve-
nience stores, which Redbox offers, they could have avoided failure. While that
seems obvious now in hindsight, tempting us to think we would have predicted
it, many experts with good information failed to predict these two major trends
that would upend the industry.
After the fact, it is easy to see that a combination of automated and mail-
order distribution would outperform the traditional brick-and-mortar movie
rental business. Similarly, in the recent housing bubble, former Merrill Lynch
CEO John Thain—and other Wall Street executives—missed what now seems
obvious—that housing prices were inflated, too many risky loans were being
made, and the values of many “securities” were based on fragile assumptions.
Though criticisms of decision makers may have merit, as Malcolm Gladwell,
author of Blink and The Tipping Point, writes, “What is clear in hindsight is rarely
clear before the fact.”61
Hindsight bias reduces our ability to learn from the past. It lets us think
we’re better predictors than we are and can make us falsely confident. If your
actual predictive accuracy is only 40 percent but you think it’s 90, you’re likely
to be less skeptical about your predictive skills.

Am I a Deliberate Decision Maker?

S A L
In the Self-Assessment Library (available in MyManagementLab), take assessment
SELF-ASSESSMENT LIBRARY IV.A.2 (Am I a Deliberate Decision Maker?). Would it be better to be a more deliber-
ate decision maker? Why or why not?

Influences on Decision Making: Individual Differences

and Organizational Constraints

We turn here to factors that influence how people make decisions and the
­degree to which they are susceptible to errors and biases. We discuss individual
differences and organizational constraints.

Individual Differences
7 Explain how individual
differences and
As we discussed, decision making in practice is characterized by bounded ra-
tionality, common biases and errors, and the use of intuition. Individual differ-
organizational constraints ences also create deviations from the rational model. In this section, we look at
affect decision making. the differences in turn.

Personality Research on personality and decision making suggests personality

influences our decisions. Let’s look at conscientiousness and self-esteem (both
discussed in Chapter 5).

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Specific facets of conscientiousness—rather than the broad trait itself—

may affect escalation of commitment,62 particularly the conscientiousness
facets of achievement-striving and dutifulness. First, research suggested that
achievement-striving people were more likely to escalate their commitment,
whereas dutiful people were less likely. Why? Generally, achievement-oriented
people hate to fail, so they escalate their commitment, hoping to forestall
failure. Dutiful people, however, are more inclined to do what they see as best
for the organization. Second, achievement-striving individuals appear more
susceptible to hindsight bias, perhaps because they have a need to justify their
actions.63 We don’t have evidence yet on whether dutiful people are immune
to this bias.
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.64

Gender Research on rumination offers insights into gender differences in

decision making.65 Rumination refers to reflecting at length. In terms of decision
making, it means overthinking problems. Twenty years of study finds women
spend more time than men analyzing the past, present, and future. They’re
more likely to overanalyze problems before making a decision and to rehash
a decision once made. This can lead to careful consideration of problems and
choices. However, it can make problems harder to solve, increase regret over
past decisions, and increase depression. Women are nearly twice as likely as men
to develop depression.66
Why women ruminate more than men is not clear. One view is that parents
encourage and reinforce the expression of sadness and anxiety more in girls
than in boys. Another theory is that women, more than men, base their self-
esteem and well-being on what others think of them. A third idea is that women
are more empathetic and more affected by events in others’ lives, so they have
more to ruminate about.
By age 11, girls ruminate more than boys. But the gender difference seems
to lessen with age. Differences are largest during young adulthood and smallest
after age 65, when both men and women ruminate the least.67

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. However, mental ability appears to help people avoid only
some of these.68 Smart people are just as likely to fall prey to anchoring,
overconfidence, and escalation of commitment, probably because just being
smart doesn’t alert you to the possibility you’re too confident or emotionally
defensive. It’s not that intelligence never matters. Once warned about
decision-making errors, more intelligent people learn more quickly to avoid
them. They are also better able to avoid logical errors like false syllogisms or
incorrect interpretation of data.

Cultural Differences The rational model makes no acknowledgment of cultural

differences, nor does the bulk of OB research literature on decision making.
But Indonesians, for instance, don’t necessarily make decisions the same way
Australians do. Therefore, 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.69

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Cultures differ in time orientation, the importance of rationality, belief in

the ability of people to solve problems, and 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 else-
where. A North American manager might make an important decision intuitively
but know it’s important to appear to proceed in a rational fashion because ratio-
nality 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 be-
lieve 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. Decision making by Japanese managers is much
more group-oriented than in the United States. 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 deci-
sions. There are probably important cultural differences in decision making, but
unfortunately not much research yet to identify them.

glOBalization!

Does Multicultural Experience Make for Better Decisions?

D
oes living in multiple cultures or was “integrative complexity”—the de- movie trailers from both U.S. and Chi-
countries improve decision making? gree to which they approached prob- nese cultures and others a similar pre-
One recent three-part study lems from multiple points of view (the sentation with content from only U.S.
looked at the effect of multicultural researchers measured this by asking or only Chinese culture. They also ma-
identity on individual creativity and ca- participants to describe a problem and nipulated Israeli multicultural identity
reer success. The researchers defined having independent evaluators rate by asking Israeli students to think and
multicultural identity as a strong identi- their responses). write about a multicultural experience.
fication with the culture in both the host A second study focused on the Even when multicultural identity was
country where the subject currently effect of multicultural identities on manipulated, it reduced intergroup
lives and the home country where the intergroup biases, or the degree to biases.
person grew up. One finding was that which individuals hold stereotypes or Thus, it seems that multicultural-
European MBA students with multicul- prejudices about those outside the ism does make for better decisions, at
tural identities were more creative on group with which they identify. For least as far as creativity and lack of bias
three different tasks. Another was that this study, researchers conducted six are concerned.
multicultural U.S. MBA students had studies of Caucasian American, Asian
higher levels of innovation, measured American, and Israeli college students.
in terms of the new ventures they In all six studies, those who had mul- Sources: C. T. Tadmor, Y. Hong, M. M.
started and novel products or services ticultural identities were less likely to Chao, F. Wiruchnipawan, and W. Wang,
“Multicultural Experiences Reduce Inter-
they created. The third part of the study endorse stereotypical beliefs against group Bias Through Epistemic Unfreez-
showed that Israeli managers with mul- members outside their ethnic group, ing,” Journal of Personality and Social
ticultural identities were rated as higher even though in three of the studies, Psychology 103 (2012), pp. 750–772; and
C. T. Tadmor, A. D. Galinsky, and W. W.
performers and more promotable than multiculturalism was manipulated by Maddux, “Getting the Most Out of Liv-
Israeli managers who scored low on the the researchers. In two studies, for ing Abroad: Biculturalism and Integrative
multicultural identity measure. All three instance, they first showed some re- Complexity as Key Drivers of Creative and
Professional Success,” Journal of Person-
parts revealed that the reason multicul- spondents a 20-minute PowerPoint ality and Social Psychology 103 (2012),
turals were more creative and effective presentation with pictures, music, and pp. 520–542.

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Organizational Constraints
Organizations can constrain decision makers, creating deviations from the rational
model. For instance, managers shape decisions to reflect the organization’s per-
formance evaluation and reward system, to comply with formal regulations, and to
meet organizationally imposed time constraints. Precedent can also limit decisions.

Performance Evaluation Managers are influenced by the criteria on which

they are evaluated. If a division manager believes the manufacturing plants
under his responsibility are operating best when he hears nothing negative, we
would find his plant managers spending a good part of their time ensuring that
negative information doesn’t reach him.

Reward System The organization’s reward system influences decision makers

by suggesting which choices have better personal payoffs. If the organization
rewards risk aversion, managers are more likely to make conservative decisions.
From the 1930s through the mid-1980s, General Motors consistently gave
promotions and bonuses to managers who kept a low profile and avoided
controversy. These executives became adept at dodging tough issues and passing
controversial decisions on to committees.

Formal Regulations David, a shift manager at a Taco Bell restaurant in San

Antonio, Texas, describes constraints he faces on his job: “I’ve got rules and
regulations covering almost every decision I make—from how to make a
burrito to how often I need to clean the restrooms. My job doesn’t come with
much freedom of choice.” David’s situation is not unique. All but the smallest
organizations create rules and policies to program decisions and get individuals
to act in the intended manner. In doing so, they limit decision choices.

System-Imposed Time Constraints Almost all important decisions come with

explicit deadlines. A report on new-product development may have to be ready
for executive committee review by the first of the month. Such conditions often

Photo 6-4 Manager Kely Guar-

dado (center) prepares hamburg-
ers alongside employees at a Five
Source: REUTERS/Yuri Gripas.

Guys Burger and Fries restaurant.

Decision choices of Five Guys crew
members are limited because work-
ers are required to follow rules and
regulations for food preparation
that meet the firm’s high standards
of quality, safety, and service.

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make it difficult, if not impossible, for managers to gather all the information
before making a final choice.

Historical Precedents Decisions aren’t made in a vacuum; they have a context.

Individual decisions are points in a stream of choice; those made in the past are
like ghosts that haunt and constrain current choices. It’s common knowledge
that the largest determinant of the size of any given year’s budget is last year’s
budget.70 Choices made today are largely a result of choices made over the years.

What About Ethics in Decision Making?

8 Contrast the three ethical

decision criteria.
Ethical considerations should be an important criterion in all organizational
decision making. In this section, we present three ways to frame decisions
ethically.71 Managers also need to understand the important role creativity
should play in the decision process; the best managers employ strategies to
increase the creative potential of their employees and harvest the ideas for
organizational application.

Three Ethical Decision Criteria

utilitarianism A system in which The first ethical yardstick is utilitarianism, which proposes making decisions
decisions are made to provide solely on the basis of their outcomes, ideally to provide the greatest good for the
the greatest good for the greatest greatest number. This view dominates business decision making. It is consistent
number.
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
whistle-blowers Individuals who process. This criterion protects whistle-blowers when they reveal an organiza-
report unethical practices by their tion’s unethical practices to the press or government agencies, using their right
employer to outsiders. to free speech.
A third criterion is to impose and enforce rules fairly and impartially to en-
sure 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 deter-
mination in layoff decisions.
Each criterion has advantages and liabilities. A focus on utilitarianism promotes
efficiency and productivity, but it can sideline the rights of some individuals, par-
ticularly 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. 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.
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
feel 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. However, while raising prices, selling products with

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 Perception and Individual Decision Making    CHAPTER 6 203

questionable effects on consumer health, closing down inefficient plants, laying

off large numbers of employees, and moving production overseas to cut costs
can be justified in utilitarian terms, there may no longer be a single measure by
which good decisions are judged.
behavioral ethics Analyzing how Increasingly, researchers are turning to behavioral ethics—an area of study
people actually behave when that analyzes how people behave when confronted with ethical dilemmas. Their
­confronted with ethical dilemmas. research tells us that while ethical standards exist collectively (society and organi-
zations) and individually (personal ethics), individuals do not always follow ethi-
cal standards promulgated by their organizations, and we sometimes violate our
own standards. Our ethical behavior varies widely from one situation to the next.
How might we increase ethical decision-making in organizations? First, so-
ciologist 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. Although controversial, the theory does
fit with behavioral ethics research showing that seemingly superficial aspects of
the environment—such as lighting, outward displays of wealth and status, and
cleanliness—can affect ethical behavior in organizations.72 Managers must first
realize that ethical behavior can be affected by signals; for example, if signs of
status and money are everywhere, an employee may perceive those, rather than
ethical standards, to be of the highest importance. Second, managers should
encourage conversations about moral issues; they may serve as a reminder and
increase ethical decision making. One study found that simply asking business
school students to think of an ethical situation had powerful effects when they
were making ethical choices later.73 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. Although smart people can be just as sus-
ceptible to moral blind spots as others, an environment that encourages open
discussions and does not penalize people for coming forward is key to overcom-
ing blind spots and increasing the ethicality of decision making.74
Behavioral ethics research stresses the importance of culture to ethical deci-
sion making. There are few global standards for ethical decision making,75 as
contrasts between Asia and the West illustrate. What is ethical in one culture
may be unethical in another. For example, because bribery is more common in
countries such as China, a Canadian working in China might face a dilemma:
Should I pay a bribe to secure business if it is an accepted part of that country’s
culture? Although some companies like IBM explicitly address this issue, many
do not. Without sensitivity to cultural differences in defining ethical conduct,
organizations may encourage unethical conduct without even knowing it.

Creativity, Creative Decision Making, and Innovation in Organizations

9 Define creativity, and

describe the three-stage
Although the rational decision-making model will often improve decisions, a
decision maker also needs creativity, the ability to produce novel and useful
model of creativity. ideas. These ideas are different from what’s been done before but are appropri-
creativity The ability to produce ate for the problem.
novel and useful ideas. Creativity allows the decision maker to fully appraise and understand prob-
lems, including seeing problems others can’t see. For this reason, French cos-
metics company L’Oréal puts its managers through creative exercises such as
cooking or making music, and the University of Chicago requires MBA students
to make short movies about their experiences.

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 204 PART 2    The Individual

An Ethical Choice

Choosing to Lie

M
ark Twain wrote, “The wise others, and we tend to engage in 3. Reward honesty. “The most difficult
thing is for us diligently to what Bazerman and Tenbrunsel call thing is to recognize that sometimes
train ourselves to lie thought- “moral hypocrisy”—we think we’re we too are blinded by our own incen-
fully.” Not everyone agrees that lying more moral than we are. tives,” writes Dan Ariely, “because we
is wrong. But we probably agree that don’t see how our conflicts of inter-
2. Trust, but verify. A recent study
people do lie, including each of us, to est work on us.” So if we want more
showed that lying is learned at a
varying degrees. And most of us prob- honesty, we have to provide greater
very young age. When a toy was
ably agree that if we lied less, organiza- incentives for the truth, and more dis-
placed out of view, an experimenter
tions and society would be better off. incentives for lying and cheating.
told young children not to look
So how might that be done? Research
at the toy and went out of sight.
conducted by behavioral scientists
More than 80 percent of the chil- Sources: Based on D. Ariely, The Honest
suggests some steps to recovery.
dren looked at the toy. When asked Truth About Dishonesty: How We Lie
1. Stop lying to ourselves. We lie to whether they had looked, 25 percent to Everyone—and Especially Ourselves
(New York: Harper, 2012); K. Canavan, “Even
ourselves about how much we lie. of 2-1/2 year-olds lied, compared Nice People Cheat Sometimes,” The Wall
Specifically, many studies reveal to 90 percent of 4 year-olds. Why Street Journal (August 8, 2012), p. 4B;
that we deem ourselves much less do we learn to lie? Because we M. H. ­ Bazerman and Ann E. Tenbrunsel,
Blind Spots: Why We Fail to Do What’s
likely to lie than we judge others often get away with it. Negotiation Right and What to Do About It (Princeton,
to be. At a collective level, this is research shows that we are more NJ: Princeton University Press, 2012); A. D.
impossible—everyone can’t be likely to lie in the future when our Evans and K. Lee, “Emergence of Lying in
Very Young Children,” Developmental Psy-
below above average in their pro- lies have succeeded or gone unde- chology (2013); and L. Zhou Y. Sung, and
pensity to lie. So step 1 is to admit tected in the past. Managers need D. Zhang, “Deception Performance in Online
the truth: We underestimate the to identify areas where lying is Group Negotiation and Decision Making: The
Effects of Deception Experience and Decep-
degree to which we lie, we over- costly and find ways to shine a light tion Skill,” Group Decision and Negotiation
estimate our morality compared to on it when it occurs. 22 (2013), pp. 153–172.

Although all aspects of organizational behavior have complexities, that is es-

three-stage model of creativity The pecially true for creativity. To simplify, Exhibit 6-5 provides a three-stage model
proposition that creativity involves of creativity in organizations. The core of the model is creative behavior, which
three stages: causes (creative has both causes (predictors of creative behavior) and effects (outcomes of cre-
­potential and creative environment),
creative behavior, and ­creative ative behavior). In this section, we discuss the three stages of creativity, starting
outcomes (innovation). with the center, creative behavior.

Creative Behavior
Creative behavior occurs in four steps, each of which leads to the next:
1. Problem formulation. Any act of creativity begins with a problem that the
problem formulation The stage of behavior is designed to solve. Thus, problem formulation is defined as the
creative behavior which involved stage of creative behavior in which we identify a problem or opportunity
identifying problem or opportunity that requires a solution as yet unknown. For example, artist/entrepreneur
that requires a solution that is as
yet unknown. Marshall Carbee and businessperson John Bennett founded Eco Safety
Products after discovering that even paints declared safe by the Environ-
mental Protection Agency (EPA) emit hazardous chemical compounds.
Thus, Bennett’s development of artist-safe soy-based paint began with iden-
tifying a safety problem with paints currently on the market.76
information gathering The stage of
creative behavior when possible 2. Information gathering. Given a problem, the solution is rarely directly
solutions to a problem incubate in at hand. We need time to learn more and to process that learning. Thus,
individual’s mind. information gathering is the stage of creative behavior when possible

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 Perception and Individual Decision Making    CHAPTER 6 205

Exhibit 6-5 Three-Stage Model of Creativity in Organizations

Causes of creative behavior

Creative potential Creative environment

Creative behavior

Problem formulation Information gathering Idea generation Idea evaluation

Creative outcomes (Innovation)

Novelty Usefulness

solutions to a problem incubate in an individual’s mind. Niklas Laninge

of Hoa’s Tool Shop, a Stockholm-based company that helps organizations
become more innovative, argues that creative information gathering means
thinking beyond usual routines and comfort zones. For example, have
lunch with someone outside your field to discuss the problem. “It’s so easy,
and you’re forced to speak about your business and the things that you want
to accomplish in new terms. You can’t use buzzwords because people don’t
know what you mean,” Laninge says.77
3. Idea generation. Once we have collected the relevant information, it is
idea generation The process of time to translate knowledge into ideas. Thus, idea generation is the process
creative behavior that involves of creative behavior in which we develop possible solutions to a problem
developing possible solutions to a from relevant information and knowledge. Increasingly, idea generation is
problem from relevant information
and knowledge. collaborative. For example, when NASA engineers developed the idea for
landing a spacecraft on Mars, they did so collaboratively. Before coming up
with the Curiosity—an SUV-sized rover that lands on Mars from a sky crane—
the team spent three days scribbling potential ideas on whiteboards.78
4. Idea evaluation. Finally, it’s time to choose from the ideas we have gener-
idea evaluation The process of ated. Thus, idea evaluation is the process of creative behavior in which we
creative behavior involving the evaluate potential solutions to identify the best one. Sometimes the method
evaluation of potential solutions to of choosing can be innovative. When Dallas Mavericks owner Mark Cuban was
problems to identify the best one.
unhappy with the team’s uniforms, he asked fans to help design and choose
the best uniform. Cuban said, “What’s the best way to come up with creative
ideas? You ask for them. So we are going to crowd source the design and
colors of our uniforms.”79 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. The more of these characteristics we
have, the higher our creative potential.

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OB Poll Is Innovation More Talk than Show?

When asked to identify their top three goals for the upcoming year, percentage
of leaders who ranked goals listed below in one of their top three

Developing leaders 51.6%

Retaining talent 46.1%

Recruiting talent 37.6%

Containing costs 35.5%

Fostering innovation 34.0%

30% 35% 40% 45% 50% 55%

Source: Based on T. Henneman, “Bright Ideas,” Workforce Management (January 2013), pp. 18–25.

Intelligence is related to creativity. Smart people are more creative because

they are better at solving complex problems. However, intelligent individuals
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.80
The Big Five personality trait of openness to experience (see Chapter 5) corre-
lates with creativity, probably because open individuals are less conformist in action
and more divergent in thinking.81 Other traits of creative people include proactive
personality, self-confidence, risk taking, tolerance for ambiguity, and perseverance.82
Expertise is the foundation for all creative work and thus is the single most
important predictor of creative potential. Film writer, producer, and director
Quentin Tarantino spent his youth working in a video rental store, where he
built up an encyclopedic knowledge of movies. The potential for creativity is
enhanced when individuals have abilities, knowledge, proficiencies, and similar
expertise to their field of endeavor. You wouldn’t expect someone with minimal
knowledge of programming to be very creative as a software engineer.

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. We need to be
in an environment where creative potential can be realized. 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. A review of 26 studies revealed that intrinsic
motivation, or the desire to work on something because it’s interesting, excit-
ing, satisfying, and challenging (discussed in more detail in the next chapter),
correlates fairly strongly with creative outcomes. This link is true regardless of
whether we are talking about student creativity or employee creativity.83
It is also valuable to work in an environment that rewards and recognizes
creative work. The organization should foster the free flow of ideas, includ-
ing providing fair and constructive judgment. Freedom from excessive rules
encourages creativity; employees should have the freedom to decide what work
is to be done and how to do it. One study of 385 employees working for several
drug companies in China revealed that both structural empowerment (in which
the structure of the work unit allows sufficient employee freedom) and psycho-
logical empowerment (which lets the individual feel personally empowered)
were related to employee creativity.84

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 Perception and Individual Decision Making    CHAPTER 6 207

What is the role of culture? A recent nation-level study suggests that coun-
tries scoring high on Hofstede’s culture dimension of individuality (discussed
in Chapter 5) are more creative.85 Western countries like the United States,
Italy, and Belgium score high on individuality, and South American and
Eastern countries like China, Colombia, and Pakistan score low; does this mean
Western cultures are more creative? Some evidence suggests this is true. One
study compared the creative projects of German and Chinese college students,
some of whom were studying in their homeland, and some of whom were study-
ing abroad. An independent panel of Chinese and German judges determined
that the German students were most creative and that Asian German students
were more creative than domestic Chinese students. This suggested that the
German culture was more creative.86 However, even if some cultures are more
creative on average, there is always strong variation within cultures. Put another
way, there are millions of Chinese more creative than their U.S. counterparts.
Good leadership matters to creativity too. A recent study of more than
100 teams working in a large bank revealed that when the leader behaved in
a punitive, unsupportive manner, the teams were less creative.87 On the other
hand, when leaders are encouraging in tone, run their units in a transparent
fashion, and encourage the development of their employees, the individuals
they supervise are more creative.88
As we will learn in Chapter 10, more work today is being done in teams, and
many people believe diversity will increase team creativity. Past research, unfor-
tunately, has suggested that diverse teams are not more creative. More recently,
however, one study of Dutch teams revealed that when team members were
explicitly asked to understand and consider the point of view of the other team
members (an exercise called perspective-taking), diverse teams were more cre-
ative than those with less diversity.89 A study of 68 Chinese teams reported that
diversity was positively related to team creativity only when the team’s leader was
inspirational and instilled members with confidence.90 Another study in a mul-
tinational drug company found that teams from diverse business functions were
more creative when they shared knowledge of each other’s areas of expertise.91
Collectively, these studies show that diverse teams can be more creative, but only
under certain conditions.

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. An employee might gener-
ate a creative idea and never share it. Management might reject a creative solu-
tion. Teams might squelch creative behaviors by isolating those who propose
different ideas. One study showed that most people have a bias against accept-
ing creative ideas because ideas create uncertainty. When people feel uncertain,
their ability to see any idea as creative is blocked.92
We can define creative outcomes as ideas or solutions judged to be novel and
useful by relevant stakeholders. Novelty itself does not generate a creative out-
come if it isn’t useful. Thus, “off-the-wall” solutions are creative only if they help
solve the problem. The usefulness of the solution might be self-evident (the
iPad), or it might be considered successful by stakeholders before the actual
success can be known.93
An organization may harvest many creative ideas from its employees and
call itself innovative. However, as one expert recently stated, “Ideas are useless
unless used.” Soft skills help translate ideas into results. One researcher found
that among employees of a large agribusiness company, creative ideas were most
likely to be implemented when the individual was motivated to translate the idea
into practice—and when he or she had strong networking ability.94 Another

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 208 PART 2    The Individual

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.95 These studies highlight an important fact: Creative
ideas do not implement themselves; translating them into creative outcomes
is a social process that requires utilizing other concepts addressed in this book,
including power and politics, leadership, and motivation.

How Creative Am I?
S A L
In the Self-Assessment Library (available in MyManagementLab), take assessment
SELF-ASSESSMENT LIBRARY I.A.5 (How Creative Am I?).

Summary

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 understand-
ing of the way people make decisions can help us explain and predict behav-
ior, 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 deci-
sion process, and relying on intuition. Managers should encourage creativity in
­employees and teams to create a route to innovative decision-making.

Implications for Managers

● To influence productivity, assess how your employees perceive their jobs.

Clue into employee absenteeism, turnover, and job satisfaction levels for
indicators of their perception. Discuss their perceptions about fairness,
compensation, and other abstract measures with them to clear up any
perceptual distortions.
● Adjust your decision-making approach to the national culture you’re oper-
ating 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.
● Be aware of biases. Then try to minimize their impact. Exhibit 6-4 offers
some suggestions.
● Combine rational analysis with intuition. These are not conflicting ap-
proaches 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 prob-
lems, attempt to see problems in new ways, use analogies, and hire cre-
ative talent. Try to remove work and organizational barriers that might
impede your creativity.

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 Perception and Individual Decision Making    CHAPTER 6 209

Stereotypes Are Dying

POINT COUNTERPOINT

I U
n the Myth or Science? feature in this chapter, we discussed nfortunately, stereotypes are alive and well. It is our
the harmful effects of stereotypes, even positive ones. For- ability to easily see them that causes us to believe they
tunately, stereotypes are dying a slow but inexorable death. are disappearing.
Whether they are about women, racial or ethnic minorities, or Research shows that when individuals hold both positive
gays, each passing year brings evidence that stereotypes are and negative stereotypes, they bury the negative stereotypes
losing their hold—thanks to the progress of society, but also when communicating with others. Why? Because they intui-
thanks to younger individuals replacing older ones in the work- tively know that expressing these stereotypes may make them
force. Younger people are less likely to endorse stereotypes look bad to others, and research shows this is the case—when
across the board. someone communicates a negative stereotype, listeners think
In the 1930s, when asked whether African Americans were less of the communicator, even when they agree. This doesn’t
“superstitious,” 84 percent agreed; 75 percent endorsed a ste- mean negative stereotypes reverse themselves over time.
reotype that African Americans were “lazy.” Thankfully, those So, we cannot take expressed stereotypes, or the lack
stereotypes are nearly gone. Results vary by study, but today thereof, at face value. A prejudice unexpressed is no less a
between 0 and 10 percent of individuals agree with those ste- prejudice. Moreover, we know that over time, people conceal
reotypes. These results show that racism still exists, but they negative stereotypes in favor of emphasizing the positive ones.
also show it is waning. This tendency to “accentuate the positive, hide the negative”
Even when people endorse stereotypes, their consensus has been found to increase when individuals were communi-
has weakened dramatically over time. For example, if forced to cating publicly (to a casual acquaintance) rather than privately
choose ten adjectives to describe a group of people, at one time (to a close friend).
people converged on a few (often incorrect) traits. Today, their If stereotypes really are waning, why would only negative
lists will vary dramatically by person. stereotypes have declined over time? Because people in 2014
There is another factor at play here: the media. Media re- are better than those in 1964 or 1984? No, if people have positive
ports are not a good source of scientific information, yet to listen stereotypes, they also have negative ones. Nowadays, it’s just
to them, you’d think stereotypes were as alive as ever. Fortu- the positive ones they’re willing to admit.
nately, that’s not the case, but when stereotypes fade, it’s not For example, nearly half (48.9 percent) of individuals de-
newsworthy. Someday soon, stereotypic thinking will be as ret- scribe Italians as “passionate”—and that has remained stable
rograde as outright acts of racism or sexism. We should count over time—whereas only 1.5 percent now describe them as
ourselves lucky to live in societies and work in organizations “cowardly”—and that has declined greatly over time. We think
where such thinking and behavior are viewed quite negatively. this is progress, but it’s less than it seems. All stereotypes are
undesirable, positive stereotypes beget negative ones, and the
negative ones haven’t gone away; they’ve just been driven un-
derground. We know from research that when such prejudices
are concealed, they are harder to change. If a view is never ad-
dressed openly, it can never be argued against.
Time and the entrance of younger individuals into society
and organizations have not eliminated or necessarily even re-
duced stereotypes. Ironically, even the assertion that younger
workers are less likely to hold stereotypes than older ones relies
on a stereotype (that older people are more likely to be preju-
diced)! We need look no further for proof of their existence.

Sources: J. L. Skorinko and S. A. Sinclair, “Perspective Taking Can Increase Stereotyping: The Role of Apparent Stereotype
Confirmation,” Journal of Experimental Social Psychology 49 (2013), pp. 10–18; and H. B. Bergsieker, L. M. Leslie, V. S. Constantine,
and S. T. Fiske, “Stereotyping by Omission: Eliminate the Negative, Accentuate the Positive,” Journal of Personality and Social
Psychology 102 (2012), pp. 1214–1238.

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END-OF-CHAPTER REVIEW

MyManagementLab

Questions for Review

6-1 What is perception, and what factors influence our 6-6 What are some common decision biases or errors
perception? ­people make?

6-2 Explain attribution theory and its three determinants. 6-7 In what way is decision making influenced by
State the implications of attribution theory in explaining individual differences and organizational constraints?
organizational behavior.
6-8 What are the three ethical decision criteria, and how
6-3 What shortcuts do people frequently use in making do they differ?
judgments about others?
6-9 Explain your understanding of creativity, and the
6-4 There is a link between decision making and importance of the three-stage model of creativity.
perception, but how does one affect the other?

6-5 What is the rational model of decision making? How

is it different from bounded rationality and intuition?

EXPERIENTIAL EXERCISE Biases in Decision Making

Step 1 6-13. Which would you choose?
Answer each of the following problems. a. A sure gain of $240
b. A 25 percent chance of winning $1,000 and a
6-10. Fortune magazine ranked the following 10 corpora-
75 percent chance of winning nothing
tions among the 500 largest U.S.–based firms ac-
cording to revenue for 2013: 6-14. Which would you choose?
Group A: McDonald’s, Visa, Amazon, Target, a. A sure loss of $750
Coca-Cola b. A 75 percent chance of losing $1,000 and a
Group B: Berkshire Hathaway, General Electric, 25 percent chance of losing nothing
Valero, McKesson, Hewlett-Packard 6-15. Which would you choose?
Which group would you say had the larger a. A sure loss of $3,000
revenue—A or B? By what percentage— b. An 80 percent chance of losing $4,000 and a
10 percent, 50 percent, 100 percent? 20 percent chance of losing nothing
6-11. A classmate of yours, whom you hardly know, has Step 2
asked you for feedback on an assignment. This stu- Break into groups of three to five students. Compare your
dent always appears rather disinterested in the course answers. Explain why you chose the answers you did.
and has been absent occasionally. State your reasons
for whether or not you would help the classmate. Step 3
Your instructor will give you the correct answers to each
6-12. Which of the following causes more deaths in the question. Now discuss the accuracy of your decisions, the
United States each year? biases evident in them, and ways you might improve your
a. Stomach cancer decision making to make it more accurate.
b. Motor vehicle accidents

Sources: These problems are based on examples provided in M. H. Bazerman, Judgment in Managerial ­
Decision Making, 3rd ed. (New York: Wiley, 1994); Fortune 500 2013 list, [Link]
magazines/fortune/fortune500/2013/full_list/[Link]?iid=F500_sp_full, accessed May 28, 2013.

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 Perception and Individual Decision Making    CHAPTER 6 211

ETHICAL DILEMMA Deciding to Cheat

We all have cheated at something. We could assume that among students who reported having recently seen
deciding to cheat is a product of cold hard calculus: Is the cheating and having friends who cheated.
benefit of cheating worth the cost? We’re actually learning, 3. Moods affect cheating. Research shows that people
however, that like many decisions, cheating is less ratio- cheat more when they are angry or tired. This insight
nal than expected. Insight from research suggests ways in reveals another positive dividend of trying to reduce
which organizations can stem cheating and other unethi- negative moods at work, as we discussed in Chapter 4.
cal behavior.
4. Incentives matter. Studies suggest that high-stakes
1. Cheating happens away from the cash. Duke Pro- outcomes create cheating as an inevitable conse-
fessor Dan Ariely finds that people steal more when quence. Coaches, CEOs, and political leaders should
they are a couple of steps removed from the cash. For still be held accountable, but it is helpful to under-
example, the John F. Kenney Center for the Perform- stand circumstances in which expectations may seem
ing Arts’ gift shop was hemorrhaging money, but the attainable only by cheating.
reason was that volunteers were helping themselves
to merchandise, not the cash drawer. Similarly, when Questions
researchers put six packs of Coke and six $1 bills in 6-16. How can you minimize the occurrence of cheating
dorm fridges, every Coke was gone within 72 hours, in an organization?
but none of the cash. 6-17. The authors of one study noted that people feel
2. Cheating is contagious. When we see others cheat, they don’t need to be objective in evaluating
we are more likely to do it ourselves. A study of high ­potential cheaters when there are disclosures
school students in upper middle class communities of unethical behavior. Do you agree? Why or
revealed that among the 93 percent who admitted why not?
to cheating, the top reason was the pervasiveness of 6-18. Do you think that if we admitted it to ourselves
cheating by others. A recent study of accounting un- when we cheated, we would be less likely to cheat
dergraduates revealed that cheating was most likely in the future? Why or why not?

Sources: R. A. Bernardi, C. A. Banzhoff, A. M. Martino, and K. J. Savasta, “Challenges to Academic In-

tegrity: Identifying the Factors Associated with the Cheating Chain,” Accounting Education 21 (2012),
pp. 247–263; M. K. Galloway, “Cheating in Advantaged High Schools: Prevalence, Justifications, and
Possibilities for Change,” Ethics & Behavior 22 (2012), pp. 378–399; and M. H. Bazerman and A. E.
Tenbrunsel, Blind Spots: Why We Fail to Do What’s Right and What to Do about It (Princeton, NJ: Princeton
University Press, 2012).

CASE INCIDENT 1 Decision-Making Processes at Steel Inc.

John Pieterson and Jack Gack are both employees of Steel competing companies gets the order. When making a pro-
Incorporated. The company counts more than 5,000 posal, a huge number of factors must be considered. Not
employees and has a presence in almost all European only does all internal information have to be considered,
countries. Steel Inc. transforms bulk steel into smaller but external information such as competitors’ proposals also
components, ranging from toy parts to food cans, ready to must be taken into account. If Steel Inc. takes too long to de-
be used in consumer products. liver a clear proposal, cannot deliver the demanded products
Like most steel companies, Steel Inc. is a traditional fast enough, or bids too high, competitors will seal the deal.
company characterized by a low level of flexibility and high Although Steel Inc. has gone through some changes, the
levels of bureaucracy. The company has several branches bureaucratic structure still has a big impact on the jobs of
and subsidiaries located all over Europe in order to stay both Pieterson and Gack. John Pieterson is a manager at a
close to its customers. The decision-making processes at subsidiary in The Netherlands. In formulating a proposal or
Steel Inc. are crucial to the company’s operations. bid for a customer’s order, he can be characterized as a very
Once a customer (new or existing) approaches the rational person. Although he takes somewhat longer than
firm, decision making must happen at a quick pace. his colleagues to do similar work, he has always secured a lot
Obviously, decisions with regard to level of customization, of customer orders and is therefore considered a very suc-
speed of manufacturing, and prices determine which of the cessful manager within the company. However, Steel Inc.’s

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 212 PART 2    The Individual

success in recent years has affected his decision making. to talk about Gack’s possible incompetence. Top manage-
He now drafts a proposal faster, but he also considers less ment has looked at Pieterson’s success and now wonders
information. In some cases, he even takes competitor whether to impose John’s style on Jack.
prices as a starting point and simply adapts those a little.
Questions
Still, the change doesn’t seem to harm his performance,
6-19. What biases in decision making can be identified in
and orders keep coming in.
the performances of both Pieterson and Gack? How
Jack Gack, located at a branch in Finland, performs the
can the identified biases be overcome?
same job as Pieterson. However, Gack has been very unsuc-
6-20. Is rational decision making better than intuitive de-
cessful lately. Of course he makes rational decisions, but
cision making? If so, when?
he also includes a fair share of intuition. Although he is
6-21. Should top management change Gack’s decision-
often criticized, Gack is not willing to let go of his intu-
making style?
ition. He truly believes that external factors contributed
to his bad performance. Subordinates have also started

CASE INCIDENT 2 Career Promotion at Emox: Rationalizing under

Uncertainty
When Kareem left the office of Emox CEO Naji Haddad, the website by a yearly average of 17 percent and advertise-
all he felt was pride and joy for being considered a poten- ment revenues by 20 percent.
tial website manager for Emox’s star search engine Araboo. When Emox needed to recruit a new website manager
While driving back home, however, these feelings of satis- for its biggest search engine, Araboo, Kareem’s success at
faction were giving way to thoughts of worry and hesitation. LebWeb made him a prime candidate for the position.
Emox was the first company in the Arab region to cre- ­Kareem began to worry about his ability to be in charge
ate, develop, and manage country-based search engines. of the whole website because, although the new job would
When Emox was established in 2000, search engines like be a big career advancement, the job of a website man-
Yahoo! and Altavista were the “Facebooks” of the era. At ager entails much more than that of a content manager.
that time, people in the region had no local search engines In ­addition, Araboo’s team is based in Saudi Arabia, and
or guides to satisfy their Internet search needs. Sensing the ­Kareem is very satisfied with his lifestyle in Lebanon. It
opportunity, Naji Haddad, co-founder and current CEO seems that ­Kareem has a lot of thinking to do; Emox’s CEO
of Emox, developed the company’s first search engine, was ­expecting Kareem’s decision early the next day.
[Link], which only returned Lebanese-related con-
Questions
tent. It was a huge success. Since the natural growth target
6-22. Using the rational choice theory model of decision
of most Lebanese businesses is the wider Middle East re-
making, identify the decision-making criteria that
gion, it was only natural that within a few months, Emox
come into play in Kareem’s decision to accept or
would develop a number of country-dedicated search en-
refuse the suggested promotion.
gines for practically every country in the region.
6-23. Based on the criteria identified above, what do you
Currently, Emox manages close to 45 regional and
think Kareem’s decision should be?
international websites, search engines, and portals.
6-24. Assume the outcome of a rational decision-making
­Kareem’s journey at Emox started in 2003 when he joined
process is for Kareem to accept the offer. However,
the company as a research analyst. Three years later, he
Kareem declines the promotion. How would you
was promoted to content manager of LebWeb, where
explain such a decision?
he rejuvenated LebWeb’s image and increased traffic to

Sources: Charbel Aoun and Hasan Shahin, “Rationalizing under Uncertainty,” Meapro Consulting, www
.[Link]. The case was adapted to provide materials for class discussions. The authors do not intend
to illustrate either effective or ineffective handling of a situation. To protect confidentiality, the authors
may have disguised certain names and other identifying information, without jeopardizing the essence
of the situation.

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 Perception and Individual Decision Making    CHAPTER 6 213

MyManagementLab
Go to [Link] for the f­ ollowing
Assisted-graded writing questions:
6-25. Do you think creativity is “born” (inherent in the individual) or “made”
(a product of opportunity and reinforcement)? Compare what we know of
the lives of Nicholoas D’Aloisio and Sara Blakely with those of other creative
individuals you know personally.
6-26. MyManagementLab Only—comprehensive writing assignment for this
chapter.

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