PERCEPTION AND DECISION MAKING

organizational behavior  PERCEPTION AND DECISION MAKING

The Link between Perception and Individual Decision Making

1. Individuals in organizations make decisions; they make choices from among two or more alternatives.

  • Top managers determine their organization’s goals, what products or services to offer, how best to finance operations, or where to locate a new manufacturing plant.
  • Middle- and lower-level managers determine production schedules, select new employees, and decide how pay raises are to be allocated.
  • Non-managerial employees also make decisions including whether or not to come to work on any given day, how much effort to put forward once at work, and whether or not to comply with a request made by the boss.
  • A number of organizations in recent years have been empowering their non-managerial employees with job-related decision-making authority that historically was reserved for managers.

2. Decision-making occurs as a reaction to a problem.

  • There is a discrepancy between some current state of affairs and some desired state, requiring consideration of alternative courses of action.
  • The awareness that a problem exists and that a decision needs to be made is a perceptual issue.

3. Every decision requires interpretation and evaluation of information. The perceptions of the decision maker will address these two issues.

  • Data are typically received from multiple sources.
  • Which data are relevant to the decision and which are not?
  • Alternatives will be developed, and the strengths and weaknesses of each will need to be evaluated.

Rational Decision-Making Model

“A decision-making model that describes how individuals should behave in order to maximize some outcomes”

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. The optimizing decision maker is rational. He or she makes consistent, value-maximizing choices within specified constraints.

organizational behavior  PERCEPTION AND DECISION MAKING

The Rational Model Step 1: Defining the problem

  • A problem is a discrepancy between an existing and a desired state of affairs.
    • Many poor decisions can be traced to the decision maker overlooking a problem or defining the wrong problem.

Step 2: Identify the decision criteria important to solving the problem.

  • The decision maker determines what is relevant in making the decision. Any factors not identified in this step are considered irrelevant to the decision maker.
  • This brings in the decision maker’s interests, values, and similar personal preferences

Step 3: Weight the previously identified criteria in order to give them the correct priority in the decision.

Step 4: Generate possible alternatives that could succeed in resolving the problem.

Step 5: Rating each alternative on each criterion.

  • Critically analyze and evaluate each alternative
  • The strengths and weaknesses of each alternative become evident as they are compared with the criteria and weights established in the second and third steps.

Step 6: The final step is to compute the optimal decision:

• Evaluating each alternative against the weighted criteria and selecting the alternative with the highest total score.

Assumptions of the Model

  • Problem clarity. The decision maker is assumed to have complete information regarding the decision situation.
  • Known options. It is assumed the decision maker is aware of all the possible consequences of each alternative.
  • Clear preferences. Criteria and alternatives can be ranked and weighted to reflect their importance.
  • Constant preferences. Specific decision criteria are constant and the weights assigned to them are stable over time.
  • No time or cost constraints. The rational decision maker can obtain full information about criteria and alternatives because it is assumed that there are no time or cost constraints.
  • Maximum payoff. The rational decision maker will choose the alternative that yields the highest perceived value

Bounded Rationality

Individuals make decisions by constructing simplified models that extract the essential features from problems without capturing all their complexity.

1. When faced with a complex problem, most people respond by reducing the problem to a level at which it can be readily understood.

  • This is because the limited information-processing capability of human beings makes it impossible to assimilate and understand all the information necessary to optimize.
  • People satisfice—they seek solutions that are satisfactory and sufficient.

1.  Individuals operate within the confines of bounded rationality. They construct simplified models that extract the essential features.

2.  How does bounded rationality work?

  • Once a problem is identified, the search for criteria and alternatives begins.
  • The decision maker will identify a limited list made up of the more conspicuous choices, which are easy to find, tend to be highly visible, and they will represent familiar criteria and previously tried-and-true solutions.
  • Once this limited set of alternatives is identified, the decision maker will begin reviewing it.
    • The decision maker will begin with alternatives that differ only in a relatively small degree from the choice currently in effect.
    • The first alternative that meets the “good enough” criterion ends the search.
  • The order in which alternatives are considered is critical in determining which alternative is selected.
  • Assuming that a problem has more than one potential solution, the satisfying choice will be the first acceptable one the decision maker encounters.
  • Alternatives that depart the least from the status quo are the most likely to be selected.

Intuitive Decision-Making

“An unconscious process created out of distilled experience”

1.  Intuitive decision-making has recently come out of the closet and into some respectability.

2.  What is intuitive decision making?

  • It is an unconscious process created out of distilled experience. It operates in complement with rational analysis.
  • Some consider it a form of extrasensory power or sixth sense.
  • Some believe it is a personality trait that a limited number of people are born with.

3. Research on chess playing provides an excellent example of how intuition works.

  • The expert’s experience allows him or her to recognize the pattern in a situation and draw upon previously learned information associated with that pattern to quickly arrive at a decision choice.
  • The result is that the intuitive decision maker can decide rapidly with what appears to be very limited information.
    • Eight conditions when people are most likely to use intuitive decision making:
      • when a high level of uncertainty exists
      • when there is little precedent to draw on
      • when variables are less scientifically predictable
      • when “facts” are limited
      • when facts do not clearly point the way to go
      • when analytical data are of little use
      • when there are several plausible alternative solutions to choose from, with good arguments for each
      • when time is limited, and there is pressure to come up with the right decision
  • Although intuitive decision making has gained in respectability, don’t expect people— especially in North America, Great Britain, and other cultures where rational analysis is the approved way of making decisions—to acknowledge they are using it. Rational analysis is considered more socially desirable in these cultures.

Decision-Making Styles

1.  Research on decision styles has identified four different individual approaches to making decisions.

2.  People differ along two dimensions. The first is their way of thinking.

  • Some people are logical and rational. They process information serially.
  • Some people are intuitive and creative. They perceive things as a whole.

3. The other dimension is a person’s tolerance for ambiguity

  • Some people have a high need to minimize ambiguity.
  • Others are able to process many thoughts at the same time.

4. These two dimensions, diagrammed, form four styles of decision making.

Directive:
Low tolerance for ambiguity and seek rationality
Efficient and logical
Decisions are made with minimal information and with few alternatives assessed.

  • Make decisions fast and focus on the short-run.
  • Analytic
    Greater tolerance for ambiguity

    • Desire for more information and consideration of more alternatives
    • Best characterized as careful decision makers with the ability to adapt to or cope with new situations
    • Conceptual
    • Tend to be very broad in their outlook and consider many alternatives
    • Their focus is long range, and they are very good at finding creative solutions to problems.
    • Behavioral
    • Characterizes decision makers who work well with othersConcerned with the achievement of peers and subordinates and are receptive to suggestions from others, relying heavily on meetings for communicating
    • Tries to avoid conflict and seeks acceptance
    • Most managers have characteristics that fall into more than one. It is best to think in terms of a manager’s dominant style and his or her backup styles.
    • Business students, lower-level managers, and top executives tend to score highest in the analytic style.
    • Focusing on decision styles can be useful for helping you to understand how two equally intelligent people, with access to the same information, can differ in the ways they approach decisions and the final choices they make.

Organizational Constraints on Decision Makers

1.  The organization itself constrains decision makers. This happens due to policies, regulations, time constraints, etc.

2.  Performance evaluation

• Managers are strongly influenced in their decision making by the criteria by which they are evaluated. Their performance in decision making will reflect expectation.

3. Reward systems

• The organization’s reward system influences decision makers by suggesting to them what choices are preferable in terms of personal payoff.

4. Programmed routines

  • All but the smallest of organizations create rules, policies, procedures, and other formalized regulations in order to standardize the behavior of their members.
  • By programming decisions, organizations are able to get individuals to achieve high levels of performance without paying for the years of experience.

5. System-imposed time constraints

  • Organizations impose deadlines on decisions.
  • Decisions must be made quickly in order to stay ahead of the competition and keep customers satisfied.
  • Almost all important decisions come with explicit deadlines.

6. Historical Precedents

  • Decisions have a context. Individual decisions are more accurately characterized as points in a stream of decisions.
  • Decisions made in the past are ghosts which continually haunt current choices. It is common knowledge that the largest determining factor of the size of any given year’s budget is last year’s budget.

Cultural Differences in Decision Making

1. The rational model makes no acknowledgment of cultural differences. We need to recognize that the cultural background of the decision maker can have significant influence on:

a.selection of problems

b.depth of analysis

c.the importance placed on logic and rationality

d.whether organizational decisions should be made autocratically by an individual manager or collectively in groups

2. Cultures, for example, differ in terms of time orientation, the importance of rationality, their belief in the ability of people to solve problems, and preference for collective decision making.

Ethics in Decision Making

1.  Utilitarian criterion—decisions are made solely on the basis of their outcomes or consequences. The goal of utilitarianism is to provide the greatest good for the greatest number. This view tends to dominate business decision making.

2.  Focus on rights—calls on individuals to make decisions consistent with fundamental liberties and privileges as set forth in documents such as the Bill of Rights.

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

4.  Focus on justice—requires individuals to impose and enforce rules fairly and impartially. There is an equitable distribution of benefits and costs. Advantages and liabilities of these three criteria:

  • Utilitarianism
  • Promotes efficiency and productivity
  • It can result in ignoring the rights of some individuals, particularly those with minority representation in the organization.
  • Rights
    • Protects individuals from injury and is consistent with freedom and privacy
    • It can create an overly legalistic work environment that hinders productivity and efficiency.
    • Justice
      • Protects the interests of the underrepresented and less powerful
      • It can encourage a sense of entitlement that reduces risk taking, innovation, and productivity.
      • Decision makers tend to feel safe and comfortable when they use utilitarianism. Many critics of business decision makers argue that this perspective needs to change.

5. Increased concern in society about individual rights and social justice suggests the need for managers to develop ethical standards based solely on non-utilitarian criteria.

Two Important Decision-Making Phases

A. Problem Identification

Problems that are visible tend to have a higher probability of being selected than ones that are important. Why?

  • Visible problems are more likely to catch a decision maker’s attention.
  • Second, remember we are concerned with decision making in organizations. If a decision maker faces a conflict between selecting a problem that is important to the organization and one that is important to the decision maker, self-interest tends to win out.

The decision maker’s self interest also plays a part. When faced with selecting a problem important to the decision maker or important to the organization, self interest tends to win out.

B. Alternative Development

1.  Since decision makers seek a satisfying solution, there is a minimal use of creativity in the search for alternatives. Efforts tend to be confined to the neighborhood of the current alternative.

2.  Evidence indicates that decision-making is incremental rather than comprehensive. Decision makers make successive limited comparisons. The picture that emerges is one of a decision maker who takes small steps toward his or her objective.

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