8
Making Good Decisions at Work: Theories
of Problem-Solving and Creativity
Learning Objectives
After reading this chapter, you will be able to
1. Describe how perceptions affect your judgment of others
2. Compare and contrast rational decision making with bounded rationality
3. List and discuss the common decision-making biases
4. Discuss techniques for improving individual decision making and problem solving
5. Consider how emotions affect decision making and problem solving
6. Explain how positivity impacts creativity and decision making
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Section 8.1 The Importance of Perception
CHAPTER 8
8.1 The Importance of Perception
Perception is the process by which people bring meaning to their world by organizing and
interpreting the stimuli around them. Objective reality is often much different from perceived reality, however, and one person’s reality may be significantly different from another’s. Consider this situation: A manufacturing company is merging with another company,
giving it the greatest market share and profitability in the industry. The CEO decides to
share this exciting news with the rest of the company. After a series of presentations in
which he makes a convincing case for the merger
and the positive impact it will have on the company and its employees, the CEO asks a group of
employees for their opinion. The CEO is shocked
to hear the employees make comments such as “I
don’t understand why we made this move” and
“In the long-term, this won’t help the company.”
The CEO cannot understand why the employees
aren’t viewing this opportunity as positively as
the board of directors and senior management.
What’s going on? Unfortunately, what the CEO
failed to realize was that the employees’ perceptions of the current merger were influenced by bad
experiences from two years earlier, when the CEO
had made the decision to roll out a defective product, the company lost money, and the employees
received no pay raises.
It’s important for organizations to understand
perceptions, because perceptions impact how
workers behave. In the previous example, workers’ decisions either to accept or verbally sabotage
the merger are based on their individual perceptions, not on the CEO’s opinion or the objective
reality of the merger’s impact. The world as it is
perceived, then, is what matters most.
Objective reality is often significantly
different from perceived reality due to
perception, the process by which people
bring meaning to their world by organizing
and interpreting the stimuli around them.
Components of Perception
Humans receive stimuli through the recognized senses of hearing, sight, touch, smell, and
taste. How, then, can two people who hear or see the same information interpret it so differently? Precisely because they do not really hear and see the same information due to the
difference between sensation and perception. Sensation is the experience of the physical
characteristics of stimuli. On the other hand, perception has three separate components:
the characteristics of the perceiver, the target that is being perceived, and the situational
context in which the perception is occurring. In order for reality to be perceived, it must
move through a personal filter. As a result, no two people will ever interpret the same
event in exactly the same way. Let’s look at how each component affects perception.
The perceiver is the person who is attending to a target. A person’s interpretation of reality
is based on his or her personal characteristics, including experiences, emotions, motives,
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Section 8.1 The Importance of Perception
CHAPTER 8
values, culture, and physical abilities. Our personal experiences are some of the most
significant influences on perception because they lead us to develop expectations. If, for
example, you worked for a manager who treated you with consideration, mentored you,
and helped you attain a promotion, your experience might lead you to trust all organizational leaders and give them the benefit of the doubt. The reverse might be the case if,
on the other hand, you worked for an overbearing, capricious manager who treated you
poorly. The perceiver’s emotional and physical states also affect perception. Generally,
people see what they want to see; when in positive moods, people view targets more
positively and vice versa. Finally, people who are ill or otherwise physically impaired
(forgetting to wear their glasses, for example) will likely perceive a target differently than
they normally would.
The target is one of the stimuli to which the perceiver is attending. People are bombarded
with countless stimuli throughout the day, but they consciously perceive only those to
which they actually pay attention. Depending on the stimuli, a target may receive more
or less attention from the perceiver. Attractive people (targets), for example, get noticed
more than unattractive people, as do high-status targets or targets that share characteristics with or hold personal interest for the perceiver. Ultimately, the more a person attends
to a target, the more information she will be able to learn about that target. However, even
close attention is unlikely to uncover all of a target’s details; the causes of an event or the
emotions behind a coworker’s behavior, for example, often remain hidden. Ambiguity or
lack of information about a target can therefore prompt the perceiver to make additional
subjective interpretations about it.
The situation is the context (social, physical, etc.) in which the target is being perceived.
Situations can affect whether a target receives any attention and thus whether it is perceived. For example, if you went to a party at the beach and a guest arrived wearing a
three-piece suit instead of a bathing suit, you might think it unusual and observe him
closely, wondering who he is and why he is there. If, on the other hand, you were at a
wedding reception and the same man, dressed in the same suit, walked in the room, you
might not even notice he was sitting at the table next to you. In the first situation, the
man’s dress is unusual for the social context, but in the second, it fits. Thus, even though
the target and perceiver in this example are the same, different perceptions are created by
different situations.
Attribution Theory: Perceiving Causes and Motives
Some of the most common perceptions we make are about other people. As mentioned
earlier, we rarely have access to all the information about a target, and this is especially
true when the target is a person. Without complete information, our interpretations of others can never be perfect. How, then, are we able to make judgments of people? Attribution
theory provides a framework for understanding this process.
Developed by Harold Kelley in 1967, attribution theory describes how people establish
explanations for their own and others’ actions and the outcomes that arise from them.
When we think a person’s behavior is caused by his or her innate personal characteristics, we are attributing it to dispositional, or internal, factors. Conversely, when we
think behavior is caused by factors outside a person’s control, we are attributing it to
situational, or external, factors. As you might expect, continued experience with the
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Section 8.1 The Importance of Perception
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behavior of a target person will increase the amount of information we receive to help
us determine whether behavior is dispositional or situational (Kelley, 1973). For example, if a new employee turns in a very important project late, a manager might attribute
this behavior to the person’s
being lazy or disorganized,
both internal characteristics.
On the other hand, if the manager was aware from previous
interactions that the employee
had been having computer difficulties or that he had trouble
getting key information from
another department, the late
assignment might instead be
attributed to external factors.
Attribution theory describes how people establish explanations
for their own and others’ actions and the outcomes that arise
because of them. Context influences how people perceive the
actions of those around them.
•
•
•
Let’s look now at the different
types of information people
gather as they make behavior
attributions. According to attribution theory, there are three
main sources:
Consistency. Does the same thing happen every time? Perceptions of a behavior are based partly on how consistently that behavior is displayed. Think of a
rude retail-store clerk. The more consistent the behavior (customer complaints
are received about the clerk every few weeks), the more likely the observer will
attribute the behavior to internal characteristics (the clerk has poor customerservice skills). On the other hand, inconsistent behavior (a complaint has never
been received about this clerk) is more easily attributable to external factors (the
customer was being difficult and unreasonable).
Consensus. Would other people act similarly in the same situation? If most
people facing the same or a similar situation respond with the same or similar
behavior, that behavior is said to show consensus. If a sales representative failed
to meet his monthly sales quota, his behavior would show consensus if all of the
other representatives also failed to meet their quotas. The high consensus would
likely clue the manager to look for external causes (e.g., slow economy, defective
product, ineffective marketing strategy) for the poor sales numbers. Conversely,
if the representative was the only one on the team not to make quota, the manager would likely attribute the poor performance to the rep’s internal characteristics (e.g., laziness, ineffective communication skills).
Distinctiveness. Do other situations and stimuli elicit the same behavior? Behaviors that are uncharacteristic of a specific person are more likely to be attributed
to external causes and vice versa. An employee who often comes to work late
but never has trouble with completing projects on time might lead a manager
to wonder if child-care arrangements, transportation challenges, or other external factors are interfering with the employee’s morning commute. If another
employee is always late—arriving at work late, turning in projects late, returning
phone calls late, and so forth—the manager might attribute the behavior as being
caused by the employee’s inherent tendency to procrastinate.
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Section 8.1 The Importance of Perception
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In summary, then, low consistency, high consensus, and high distinctiveness tend to lead
to external behavior attributions, whereas high consistency, low consensus, and low distinctiveness tend to lead to internal behavior attributions. Keep in mind that external and
internal attributions are, by themselves, neither good nor bad. Depending on the circumstance, however, the target may think one more desirable than the other. Olympic swimmer Michael Phelps, for example, achieved his success by demonstrating high consistency
(consistent practice and high performance), low distinctiveness (winning 14 gold and two
bronze medals over the course of two Olympic Games), and low consensus (extraordinary
natural talent and relentless drive to succeed). Most of us would unquestionably attribute
Phelps’ success more to these internal sources and not just to luck, good coaching, or a hightech swimsuit. In this case, then, an internal attribution is quite positive; after all, we all
want others to believe we achieve success based on our own merits and not because someone gave it to us. In other situations, we may hope for the reverse. Being late to work, breaking a valuable piece of equipment, making a mistake on a huge project: These are the times
when we want others to attribute the outcome to something—anything!—but ourselves.
Despite their best efforts, however, people make mistakes when they try to figure out why
others act the way they do. Research has shown that we are very aware of others’ behavior, and that this high level of attention leads us to overattribute behavior to dispositional
factors such as abilities, traits, and motives and to underattribute behavior to situational
factors outside of the target’s control (Ross, 1977). This tendency is so common that it is
known as the fundamental attribution error. The fundamental attribution error helps
explain how managers can attribute an employee’s tardiness one morning to laziness and
poor judgment instead of the ten-car pileup he heard about on his drive in to work. In
contrast, the self-serving bias describes the common tendency to attribute our successful
behaviors and outcomes to dispositional characteristics but to blame external factors for
poor behaviors and failures (Jones & Nesbitt, 1971).
Consider This: Your Own Attributions
• Think about a recent positive event that happened in your life. It can be personal (e.g., finished
a difficult home-improvement project), social (met a special person), or professional (got a
promotion).
• To what extent do you believe that this event should be attributed to internal or external causes?
• Think about the causes that led to the event. To what extent are those causes characterized by
consistency, consensus, and distinctiveness as described earlier?
• Are your findings consistent with Kelley’s attribution theory?
• Now think about a recent negative event in your life. Again, it can be personal, social or
professional.
• Analyze the event in terms of consistency, consensus, and distinctiveness, as well as internal
and external attributions as you did before.
• Repeat this exercise with additional positive and negative events. Choose events that are
important to you.
• Now consider positive and negative events that took place in the lives of people close to you.
They can be friends, family members, coworkers, or classmates. Analyze the event in terms of
consistency, consensus, and distinctiveness, as well as internal and external attributions as you
did before.
• Do you have predominant attribution biases for events in your own life? In others’ lives?
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Section 8.2 Shortcuts in Person Perception
CHAPTER 8
8.2 Shortcuts in Person Perception
Humans have a limited capacity to attend to and interpret the myriad of stimuli to which
they are exposed every day. In order to function in our complex world, we use a number
of shortcuts to streamline and simplify the process of perception. Although these shortcuts are valuable for making quick, accurate evaluations, they are certainly not perfect.
Trouble occurs when they are overused or used to make overgeneralizations, which can
lead to significant distortion of a target’s actual characteristics. One of the best ways to
mitigate distortion is to learn about different perception shortcuts and recognize how each
can mar our judgments.
Primacy and Recency Effects
When people attempt to evaluate and make sense of their world, they tend to rely on
information gathered from their earliest as well as most recent experiences with a target
or series of targets. The primacy effect is the tendency to rely on information gathered
from our earliest experiences with a target or series of targets. The recency effect, on the
other hand, is the tendency to rely on information gathered from our most recent experiences. In the workplace, the primacy effect often influences the way interviewers evaluate
potential job candidates. First impressions, such as clothing, timeliness, or even a firm
handshake, can have a big impact on the interviewer’s judgment of a candidate’s suitability for a job. After seeing a series of job candidates, interviewers also tend to remember
more clearly their interactions with the earliest (primacy effect) and most recent (recency
effect) candidates.
Selective Perceptions
For safety and other reasons, people need to be able to make quick judgments about their
environment. Therefore, we tend to pay attention to people, objects, and events that stand
out. This tendency to make selective perceptions extends to the social realm, as well:
We’ll notice the loud and colorful woman at a party or the jocular, well-dressed man at a
conference but not their more subdued counterparts. In general, we attend more closely
to stimuli that are loud, attractive, or have something in common with us. By selectively
attending to certain characteristics, we are able to speed up our evaluations of people and
more quickly make sense of the world. As you might recall from chapter 4, people also
tend to give more attention to negative or threatening events or stimuli for the same reasons: They stand out more, and they signal a need for more immediate action.
Contrast Effect
According to the contrast effect, our reactions to others are influenced by previous interactions with other people. When two things appear close together in time, we tend to
evaluate them against one another rather than against a fixed standard. For example, an
extravert appears more gregarious when in a crowd of introverts. In an interview situation, a stellar candidate may make the next candidate lose some of her luster. Similarly, if
a longtime coworker retires, her replacement may never seem to be able to measure up,
regardless of the new coworker’s actual performance.
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Section 8.3 The Role of Perception in Decision Making
CHAPTER 8
Stereotyping
Stereotyping occurs when we categorize information and assume
that objects, people, or experiences
that fall into the same group share
more characteristics than they
actually do. Stereotypes are quick
and easy and help keep us from
having to relearn the same information over and over again. Think
how difficult life would be if we
faced a flight of stairs as a completely new invention every time
we happened upon a flight we had
never climbed, or if we had to start Because stereotypes are based on assumptions,
from scratch every time Microsoft characteristics are often falsely attributed to individuals.
Office was updated! Of course, For instance, people often think that women are weak and
stereotypes quickly get muddled emotional due to stereotyping.
when we use them with people.
Any time stereotypes are based on group status, such as age, gender, religion, ethnicity,
or race, discrimination can occur. “Women are weak and emotional,” “senior citizens are
slow,” “overweight people have no discipline”—each of these stereotypes assumes that
people in specific groups are all the same, even though the range of human experience and
identity is so extraordinarily diverse that such assumptions are, if we stop to think about
it, illogical. Even though stereotypes can result in erroneous perceptions of an individual’s
actions, beliefs, and abilities, they are, unfortunately, one of the first tools we use when
encountering any new situation. Therefore, it is critical that we gather additional information about others and revise our initial impressions to ensure that we do not unfairly apply
stereotypes and fall into the trap of discrimination.
Consider This: Perceptual Biases
• Recall a time that you were wrong in judging somebody’s character, motives, or actions.
• What are some of the attributes or behaviors of that person that led to your wrong judgment?
• To what extent did some of the perceptual biases discussed earlier contribute to your wrong
judgment?
• What did you learn from that experience? Did it make you more aware of your biases? How will
you handle similar people or situations differently in the future to mitigate those perceptual
biases?
8.3 The Role of Perception in Decision Making
One of the most important actions for both managers and employees is making decisions.
Managers make decisions about whom to hire and what products to sell, processes to
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Section 8.3 The Role of Perception in Decision Making
CHAPTER 8
implement, and resources to allocate, just to name a few. Employees make decisions on
how to structure their work, deal with customer challenges, and improve product quality—again, just to name a few. How we make decisions, as well the quality of the decisions
themselves, is based largely on perceptions.
The first step in the decision-making process is determining that a problem exists. Because
problem identification is discretionary, perceptions play an important role in this step. For
example, an inexperienced manager may see a 5% drop in customer-satisfaction scores
as a major problem that requires immediate attention, whereas an experienced manager
may perceive the drop to be acceptable because
she knows that such scores always go down temporarily after the launch of a new product. What
one person perceives to be a problem may not be
viewed as one by another person.
Perceptions also affect the way we interpret and
evaluate information, an essential part of making a decision after a problem has been identified.
Once again, people have choices about the data
and information they will gather to help them
understand or solve problems. Individual perceptions guide beliefs about what information may
be relevant to the decision. For example, a college
student might consider price the most important
factor when purchasing a car, whereas a farmer
might put greater importance on towing capacity.
Finally, perceptional distortions like stereotyping
can bias both analyses and conclusions.
How managers make decisions including
whom to hire and what to sell is based
largely on perceptions.
As you can see, perceptions play a critical role in
the decision-making process. In the next section,
we will examine the process of decision making,
biases that affect it, and ways to improve it.
Decision Making in Organizations
Effective decision making is critical to an organization’s success. Consider the following
situations:
•
•
•
You are a product officer for a high-tech company. You have two new products
to take to market but have funding for only one. How will you determine which
product to introduce?
A large advertising agency is working with a client who wants to gain market
share from its competitors by marketing to young professionals. The agency
needs to decide whether to spend all of the marketing funds on a single medium
(Internet, television, or radio) or to spread it across all three.
You are the corporate acquisition officer for a large oil company that has an interest in acquiring a small- to medium-sized renewable energy company (e.g., solar,
wind) in order to diversify its capabilities. What type of company should your
organization acquire?
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Section 8.3 The Role of Perception in Decision Making
CHAPTER 8
Though each of these decision-making situations is unique, they also share some characteristics. First, a gap, called the problem, exists between the current situation and the
desired outcome. Second, each problem has more than one solution. How do organizations decide to solve problems? How do they solve the problem of deciding which solution to pursue? Let’s look at some models organizations can use when solving problems
and making decisions.
Rational Decision-Making Model
The basic tenet of the rational decision-making model is to identify and select the outcome that is of maximum value to the organization. In this model, the decision-making
process has six steps:
1. Define the problem. Often, identifying the problem is fairly straightforward, as it is
in the sample scenarios above. This is not always the case, however, and managers must be careful not to act too quickly, lest they make the mistake of solving
the wrong problem. For example, instead of quickly identifying assemblers as the
problem after a series of line shutdowns, an assembly-line manager might investigate further and discover that the real problem is an ineffective protocol or a
faulty machine.
2. Identify the criteria. After defining the problem, the organization should determine
its objectives for the decision and the process needed to accomplish it. Looking
back at the scenario about the high-tech company with two new products, the
company may have the ultimate objective of increasing sales, but it may also
desire greater brand awareness, improved customer loyalty, and greater market
share. The company also needs to consider how it plans to mass-produce, distribute, and sell each of the two possible new products. The rational decision-making
process requires the decision maker to identify all relevant criteria.
3. Weigh the criteria. Different criteria will have different levels of importance to
the decision maker. The rational decision maker will determine relative values
for the various criteria by examining the pros and cons of each. Our high-tech
company, for example, would weigh the relative importance of brand awareness
versus customer loyalty or the high cost of producing a more innovative product
versus the lower cost of producing a new version of an already popular product.
4. Generate alternatives. The fourth step is to generate all possible solutions to the
problem. Instead of limiting the scope of the decision to choosing either product A or product B, the high-tech company might also consider the feasibility of
releasing both products on a smaller scale or even waiting on both products in
favor of developing a third. The company might also revisit the various development and marketing criteria for each of the original products to see if more effective or lower-cost alternatives exist. In the rational decision-making approach,
this investigation continues until the cost of the search for alternatives exceeds
the value of any additional information (Bazerman, 2002).
5. Rate each alternative on each of the criteria. With this step, organizations assign
numeric ratings to each of the alternatives generated in step 4 in relation to each
of the criteria identified in step 2, in an effort to determine how well each alternative is able to satisfy the criteria. This step can be especially difficult because it
requires the decision maker to forecast future events. For our high-tech company,
trying to predict which product—the innovative, expensive item or the lessexpensive revamp—will ultimately be most profitable will be tricky indeed. This
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Section 8.3 The Role of Perception in Decision Making
CHAPTER 8
is because the first alternative may have a less favorable rating on price and risk
but a more favorable rating on quality or consumer appeal, whereas the second
may be at the opposite end of the rating scale on each of these criteria.
6. Compute the optimal decision. In a perfect situation, the optimal decision is calculated simply by multiplying the rating of an alternative by the value of weighted
importance given to each criterion, and then adding the totals for an aggregate
score. This is done for each alternative, the scores are compared, and the one with
the highest score is chosen.
The rational model of decision making assumes that the decision maker fulfills each step in
a completely rational manner by fully defining the problem, identifying all criteria, accurately weighing the criteria, identifying all
possible alternatives, accurately assessing
the alternatives, and choosing the alternative that yields the maximum value. Following the model will always produce a solution that is completely informed, perfectly
logical, and economically oriented. As you
can probably guess, however, this model is
really more useful for theoretical purposes;
it describes how decisions should be made,
not how they really are made. Real decision
makers will always be influenced by subjective factors such as emotions and perceptual biases and are limited by their ability to
acquire and process information and their
creativity in generating alternatives. Time
constraints, budgets, and political considerations also interfere with perfect rationality. These limitations inspired a decisionmaking model based on the more realistic
assumption of bounded rationality.
Bounded Rationality
Herbert A. Simon was an American sociologist, psychologist, economist, and political
scientist whose research engendered an amazing number of important scientific topics,
including artificial intelligence, information processing, and decision making, just to
name a few. In 1957, he proposed that a number of bounds, or limitations, interfere with
people’s ability to make decisions. His theory of bounded rationality states that humans’
limited mental abilities combined with external factors over which they have little or no
control (such as time or money) prevent them from making perfectly rational decisions.
The decision maker may not identify all possible alternative solutions or be able to determine accurate probabilities of success for the alternatives he does know about. Rational
decision making is overwhelmingly complex. On the other hand, according to the model
of bounded rationality, decision makers often “satisfice” their decisions instead of maximizing them. Satisficing means that the decision maker establishes an adequate level of
acceptability for the outcome to a problem and then screens alternative solutions until one
is deemed to be satisfactory or sufficient (Simon, 1957).
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Section 8.4 Cognitive Biases
CHAPTER 8
People make satisficing decisions every day. Think about the last time you purchased a
car. Did you consider every possible criterion or review the characteristics of every single
car on the market in order to truly make the optimal decision? Probably not. Just think of
how much time and effort would be involved in a truly exhaustive investigation of and
search for a new car. Instead, you probably identified a few very important criteria, such
as gas mileage, color, “coolness,” and affordability, while ignoring other criteria which,
to you, were less important. Using your limited list of criteria, you probably then began
to evaluate a few alternatives until you found one that best fit your criteria. Instead of
maximizing, you satisficed. With all of the choices people make every day, making decisions using bounded rationality enables us to find acceptable solutions while maintaining efficiency.
8.4 Cognitive Biases
Although the vast majority of people apply bounded rationality to their decision-making
processes, research suggests that people do have the tendency to acquire and process
information in an error-prone way. Seminal research by Amos Tversky and Daniel Kahneman (1974) discovered that people make a variety of systematic and predictable mistakes
in their judgments. People form general rules of thumb, called heuristics, which help
them to reduce the complexities of information processing. Even though using heuristics,
like other mental shortcuts, often results in accurate decisions, cognitive biases can distort
information processing if they are generalized too frequently or applied inappropriately.
The following are the most common biases in the decision-making process.
Anchoring Bias
The anchoring bias is the tendency for people to make judgments based on initial information without utilizing new information to adequately adjust the original assessment.
This bias occurs because the mind gives disproportionate attention to the information it
initially receives. Consider the anchoring bias the next time you negotiate the starting salary for a new job. When the hiring manager asks you how much you made at your previous job, your answer will stick with the manager and will anchor his salary offer for the
new job. To achieve the highest starting salary possible, it is important to propose a salary
that is as high as reasonable—without being outside the competitive range—so that the
manager anchors his offer on the high end of the range.
Availability Bias
Availability bias is the tendency for people to assess the frequency or probability of an
event based on information that is readily available to them (Tversky & Kahneman, 1973).
For example, people are often more afraid of flying than they are of riding in a car. Of
course, most of us know that this fear is irrational, because significantly more people die
every year in car accidents than in plane crashes. Yet, plane crashes are spectacular events
that typically make the national news, and vivid, emotional, easily imagined, and specific
events are more readily available for recall than unemotional, uninteresting, or vague
events (Bazerman, 2002).
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Section 8.4 Cognitive Biases
CHAPTER 8
Confirmation Bias
Confirmation bias suggests that people look for information that confirms or supports
what they believe to be true and to discount information that disproves or does not support it. People tend to accept confirmatory information at face value but meet contradictory information with criticism and skepticism. Confirmation bias also suggests that
individuals will be more likely to collect information from people they know will support
their beliefs, such as friends, family members, or coworkers. Finally, this bias leads people
to assign greater importance to confirmatory information and less importance to contradictory information. Asking a friend to act as devil’s advocate by challenging or suggesting contradictory information can help reduce the influence of confirmation bias.
Escalation of Commitment Bias
Escalation of commitment bias was first described in Barry Staw’s (1976) paper “KneeDeep in the Big Muddy: A Study of Escalating Commitment to a Chosen Course of Action.”
Staw’s image—that of a person stuck in the mud, unwilling to backtrack but certain to
sink even deeper if he continues in the current direction—vividly describes this bias, which
occurs everywhere from the workplace to warfare to romantic relationships. When people
make a decision, they tend to stick with it, and the more invested they become in their
choice, the less likely they are to abandon it—because they want to be “right,” because they
don’t want to be seen as weak or stupid, because they’ve spent a lot of money and don’t
want it to have been for nothing—even when the costs of the solution outweigh the benefits.
Imagine the following scenario: Recently, you hired Joe, a person with a great education
and significant work experience. Despite your high expectations, Joe seems to be struggling. Should you just fire him and try to find someone new? Because it took such a long
time to find a quality candidate, you decide to give Joe a few more months to settle in. Two
months pass, and you start receiving customer complaints about your new employee.
Unwilling to give up just yet, you decide to provide Joe with additional training opportunities. Three months later, Joe is still not meeting performance expectations. Should you
cut your losses now, even though you’ve made a significant investment in this employee?
When is the right time to give up on an investment?
In this scenario, you, as the manager, made a series of unfortunate choices based on your
initial decision to hire Joe. The justification for continuing to make poor choices is best
illustrated by the irrational treatment of sunk costs. Sunk costs are permanent losses of
resources incurred as the result of a decision. The key word here is permanent. Even though
they are gone for good, sunk costs can lead people to throw good money after bad (that
is, make poor choices) in a fruitless attempt to recoup their losses. Research shows this to
be especially true if the decision maker is believed to be at fault (Brockner & Rubin, 1985),
perhaps because changing one’s mind, or flip-flopping, is often perceived as a weakness.
Hindsight Bias
You are watching your favorite football team attempt to win the championship. The
team is behind 27–21 with just seconds left in the game. With the ball on the 1-yard
line, the coach calls a pass play that the quarterback overthrows into the back of the
end zone just as the clock runs out. Devastated, you fall to your knees and shout, “Why
did we choose that stupid play? I knew a pass play would never work!” This tendency
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Section 8.5 Improving Individual Decision Making
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for people to believe that they could have
predicted the correct outcome, after they
know the actual outcome, is hindsight
bias (Fischhoff, 1975). Unfortunately,
hindsight bias frequently makes people
overconfident in their decision-making
abilities, even in situations in which they
do not have all the needed information.
Our armchair quarterback, for example,
was satisfied simply to believe he “knew
a pass play would never work” and felt
no need to learn why the coach called the
play, or why the play failed. Hindsight
bias also reduces a person’s ability to
learn from past experiences.
Overconfidence Bias
One of the most prominent and potentially disastrous biases in decision making is that of
overconfidence (Plous, 1993). One series of studies showed that people were 65–70% confident of being correct in their decisions when in reality they were correct only about half
the time (Lichtenstein & Fischhoff, 1977). Overconfidence is especially dangerous because
it occurs more often when people lack the intellectual ability or expertise necessary to
evaluate a situation adequately before making a decision. In fact, research shows that
overconfidence subsides in situations in which a person possesses expertise about the
problem or issue under consideration (Kruger & Dunning, 1999).
Consider This: Rational Decision Making Versus Bounded Rationality
• Think about an important decision you have recently made. It can be choosing a college to
attend or a person to marry, accepting a job offer, purchasing a home, or ending a difficult
relationship. Try to remember as many details as possible about the decision, including your
thoughts and emotions while making the decision, information that was available or unavailable, advice you received from others, the decision itself, and the consequences of the decision.
• To what extent did your decision-making process resemble the rational decision-making model
described above?
• To what extent did you satisfice? How would your decision have changed if you had the time,
resources, and information to make a more rational decision?
• Which of the above cognitive biases had an impact on your decision?
• Would the consequences have been different if those cognitive biases were not present?
8.5 Improving Individual Decision Making
Generally speaking, humans are not bad decision makers, but we do often fall short of
making fully rational decisions. As you have seen, our ability to make good choices is
easily influenced by emotions, intellectual limitations, external forces such as time and
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Section 8.5 Improving Individual Decision Making
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money, and a myriad of perceptive and cognitive biases. How can decision makers overcome these deficiencies?
Acquiring Expertise and Experience
Gaining experience and expertise in the domain area of the decision is one way to improve
decision-making skills. In the workplace, workers can gain expertise by enhancing their
education or obtaining feedback on their past decisions. Feedback provides a learning mechanism that not only helps decision makers create a conceptualization of what actions make
effective decisions but also enables them to identify the best strategies for overcoming common negative biases (Neale & Northcraft, 1989). To gain experience, decision makers must
have the opportunity to make decisions in a broad array of contexts. When people have only
a narrow set of experiences upon which to base their decisions, they tend to focus too much
on surface criteria, which limits their ability to identify novel solutions (Thompson, 2001).
There are a number of practical steps decision makers can take to help them more effectively apply their newfound expertise and experience in decision-making situations. First,
the most effective decision makers are those who effectively combine experience with
expertise. For example, just because a manager learned about transformational leadership
does not make that manager a transformational leader nor does it make transformational
leadership an effective leadership style in every situation. Thus, what researchers suggest
and what practitioners know is that in order to improve decision making, people must
learn as much as possible about the specific domain of the decision and then find opportunities to make decisions in the same or a similar domain. For example, the manager may
need to practice transformational leadership on a small scale with a few trusted associates
in order to master the style, build confidence and experience, and assess its success before
gradually expanding use of that style with other associates who appear to be ready for it.
Additionally, after making a decision, decision makers must reflect on the effectiveness of
their choice. If a decision turns out to be poor, decision makers should try to learn why it
was poor, perhaps by asking an expert for feedback. With successful decisions, decision
makers can look for other situations in which the same strategy could be applied.
Debiasing Judgments
Debiasing judgment is a process of eliminating cognitive biases from the decisionmaking process. Because cognitive biases exist outside the decision maker’s perceptual
awareness, the process of debiasing our judgments involves consciously employing
strategies to make ourselves aware of biases and how they impact our decision-making
accuracy. There are three steps in the debiasing process: (1) individuals receive descriptions of the common biases, (2) they receive an explanation for the causes of the biases,
and (3) they receive assurance that biased decision making is common and can be overcome (Bazerman, 2002). Thus, although eliminating bias from everyday decision making
is a constant challenge, one important way to do so is to increase the decision maker’s
awareness of biases and their impact on decisions.
Taking an Outsider’s View
When making a choice, the decision maker can take one of two perspectives: that of the
insider or the outsider. Typically, the insider views her situation as unique and believes
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Section 8.6 Creative Decision Making
CHAPTER 8
that a solution will result in a different outcome if employed in other, similar circumstances. In contrast, the outsider is not influenced by the unique emotions of a particular
circumstance, which allows her to generalize across and identify similarities between the
current and other situations.
As an example, imagine a project team that is beginning the design process for a new product. The company has hired a consultant who has worked with other companies in the
industry on similar projects to help prepare an estimated budget and timeline (outsider
view). The team leaders, however, feel confident they can complete the project six months
ahead of schedule and 50% under the estimated budget because they believe their team is
uniquely talented and has access to better resources than their competitors (insider view).
Research suggests that outsiders make more accurate estimates and decisions than
insiders because outsiders are better able to apply more relevant data from past decisions (Kahneman & Lovallo, 1993). However, people are much more likely to take the
insider’s view. Why? Optimism and overconfidence often lead insiders to believe that
the specific situation is different from situations mentioned
by the outsider. Unfortunately,
by focusing on the specific situation, insiders miss the opportunity to incorporate historical
information into their judgments. Thus, another way to
reduce bias and improve the
accuracy of decision making is
to include insights and information from outsiders during
the decision-making process.
The next time you have to make
an important decision, be sure
to invite an outsider or two to
share their perspective on the
situation. If a trusted outside
source is not available, try to take the outsider’s perspective yourself by pretending the
decision is someone else’s to make, and then think about what advice you would offer
that person. Although not perfect, playing the role of the outsider can help decision makers view the problem and potential solutions from a different perspective.
Optimism and overconfidence can lead to misjudgment
because a situation may be perceived much different than its
objective reality.
8.6 Creative Decision Making
Organizations are constantly striving to discover, create, or produce the next big thing.
This insatiable need for creativity has led many researchers and practitioners to start
thinking about creativity: What is it? How does it work? How do we get more of it into
our company? In this section, we identify people’s potential for creativity, review a model
of creativity, and discuss ways to improve it.
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Section 8.6 Creative Decision Making
CHAPTER 8
What is Creativity?
Creativity occurs when a product, service, or procedure is proposed that is both novel
and useful (Zhou & Shalley, 2010). For example, if an engineer who was working on a
new supersonic jet for commercial flights were to propose an innovative way to adapt the
space shuttle design to commercial aircraft, this would be considered both novel and useful and thus creative. If, on the other hand, he were to submit plans for a gigantic hot-air
balloon, this would not be considered useful, although it might be novel. Keep in mind,
then, that coming up with a wild, unique, or bizarre idea does not make a person creative
unless the idea is useful in solving a problem.
Creativity is an important part of effectively solving problems and making decisions. Creative thought expands the decision maker’s perspective and increases the number and
type of alternatives available to solve the problem. Creativity drives the great ideas and
innovations made by people across the world every day.
Creative Potential
Are you creative? Many of us
look at the spectacular creations of people like Albert Einstein, Steve Jobs, Pablo Picasso,
Mozart, and Shakespeare and
immediately shake our heads,
sigh, and say, “I am so not creative!” Don’t be discouraged!
Research suggests that each of
us, regardless of our role, function, or level in an organization, has potential for creativity—albeit some of us more than
others (Oldham & Cummings, Creativity expands the decision maker’s perspective and
1996). Several personal traits increases the number of potential solutions to a problem.
have been discovered to increase
a person’s potential for creativity. One study examined trait differences between artists and
nonartists and between scientists and nonscientists and found that artists and scientists
were significantly more likely to score high on the Big Five personality trait openness to
experience (Feist, 1998). Because both jobs are highly creative, this finding suggests that
people who are open to new ideas and experiences are more likely to be creative. Individuals with higher intelligence have also been found to be more creative (Feist & Barron, 2003).
Other personal traits that have been shown to have a relationship with creativity include
self-confidence, high energy, attraction to complexity, propensity for risk-taking, and tolerance for ambiguity (Barron & Harrington, 1981; Woodman, Sawyer, & Griffin, 1993).
Three-Component Model of Creativity
If everyone has at least some potential to think creatively, what can people do to maximize their creative potential? Teresa Amabile’s (1996) three-component model of creativity proposes that creativity is the result of a person’s expertise, creativity skills, and
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Section 8.6 Creative Decision Making
CHAPTER 8
motivation. The research indicates that all three of these components are needed to make
creative decisions and that the higher the level of each component, the greater the person’s capacity for creativity.
•
Expertise. The potential for creativity increases when a person has knowledge,
skills, and experience in the domain of a problem. Sometimes, people need to
link ideas from multiple sources and to recognize the relevance of information to
new problems. Experts have the knowledge necessary to put the facts together.
• Creative thinking skills. Creative thinking skills are demonstrated by how flexibly and imaginatively people approach problems. One creative thinking skill
involves the use of analogies. Creativity requires finding connections between
diverse sources of information, and analogies encourage people to look at different situations in new ways in order to discover how they are related. Another
creative thinking skill is conceptual expansion, which involves the combination of
two disparate domains (of knowledge, experience, etc.) to make a novel idea or
product (Shalley & Perry-Smith, 2008). Often, people’s ideas are limited by their
current knowledge; they keep using the same tools to fix the same problems.
However, when people are able to identify and apply information from a source
that is completely new, unrelated, or unexpected, that’s when conceptual expansion occurs. An example is the evolution of commercial spaghetti sauce. While
working with PepsiCo in the early 1970s, Howard Moskowitz had the notion that
the company should stop looking for the single perfect Pepsi that everyone would
like and instead make different varieties of their product that would appeal to
different people’s different tastes. At the time, PepsiCo chose not to listen, but
years later, Moskowitz took his idea for soda—to make a variety of products in
order to appeal to many different tastes—and used it to make millions for Prego
and revolutionized the spaghetti sauce industry. Moskowitz was able to take
information gleaned from working with a
soda company and apply it to a spaghetti
sauce company, resulting in a huge expansion of our country’s concept of what
spaghetti sauce should be. So, the next time
you need a good idea, instead of looking
to see what everyone else in your industry
is doing, look to see what organizations in
unrelated fields are doing—and see if you
can find a connection!
• Motivation. The most important component
of creativity is intrinsic task motivation.
As you recall from chapter 6, motivation is
intrinsic if it results from the individual’s
interest and involvement in and curiosity about the positive challenge of the task
itself, regardless of external recognition or
reward. Intrinsic motivation is essential for
creativity because without it, people will
Intrinsic motivation is the most important
not be motivated to engage in or persist
component of creativity because without
with a task, regardless of their expertise or
it, people will not be motivated to persist
with a task.
skill in creative thinking (Amabile, 1996).
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Section 8.7 Special Issues in Decision Making
CHAPTER 8
Stimulating Creativity at Work
People can improve their creativity by increasing their expertise, expanding their creative thinking skills, and searching for the intrinsically motivating element in every task.
However, certain managerial and organizational practices can also motivate employees to
display greater creativity. First, the organization must have an atmosphere that encourages creative expression. One way is to offer financial rewards for creative suggestions.
Another is to avoid reacting to honest mistakes with punishments or overly critical feedback (Osland, Kolb, & Rubin, 1991). Second, organizations should include creativity goals
for their employees. In comparison to production goals, creativity goals help workers
focus on producing novel solutions, which increases creativity (Shalley, 1991). For example, for many years 3M encouraged creativity by allowing its employees to spend 15%
of their time on creative projects of their choice. Finally, supervisors can encourage their
subordinates’ creativity by giving them the autonomy to solve their own work problems.
Specifically, research has found that employees who work for transformational leaders are
more creative (Shin & Zhou, 2003). As you can see, there are many practical steps organizations can take to unleash the creative potential of their workforce.
8.7 Special Issues in Decision Making
Two decision-making topics have garnered considerable recent attention among I/O
psychologists and behavioral scientists. The many stories of corporate greed and scandal
have fueled efforts to improve the ethics of decision making. Emotions and their influence
on effective decision making is another hot issue.
Ethical Decision Making
Ethics are an important component of
any decision-making process. Ethics are
defined as “standards of behavior that
tell us how human beings ought to act in
the many situations in which they find
themselves—as friends, parents, children, citizens, businesspeople, teachers,
professionals, and so on” (Markkula Center for Applied Ethics, 2009). Although
the ethicality of a decision is often hard
to judge, five basic ethical standards can
help people guide their decisions (Cavanagh, Moberg, & Valasquez, 1981).
1. The utilitarian approach states that the ethical decision is the one that provides
the most amount of good while doing the least amount of harm. In simple terms,
the utilitarian approach deals with consequences. It attempts to maximize the
positive outcomes while minimizing the negative. The CEO of a company would
be using the utilitarian approach if he decided to eliminate 10% of the company’s
workforce in an attempt to save the company during an economic recession.
Even though many workers would lose their jobs, the CEO is able to justify his
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Section 8.7 Special Issues in Decision Making
2.
3.
4.
5.
CHAPTER 8
decision by keeping negative outcomes as low as possible while saving the company and keeping 90% of the workers employed during hard economic times.
The utilitarian approach is very common in business because it supports logical
business principles such as efficiency, profits, and productivity.
The rights approach suggests that the ethical decision is the one that best protects and respects people’s moral rights. This approach stems from the belief that
all people are entitled to basic human rights, such as freedom to choose how they
live their lives, the right to have a certain degree of privacy, and the right to be
treated with dignity. A whistle-blower (a person who reports unethical behavior
or practices occurring in his or her organization) would be utilizing the rights
approach if, for example, she reported systemic sexual harassment of subordinates by the executives of her company. Economically speaking, the employee’s
decision might not be the best, because it would likely result in expensive lawsuits, executive upheaval and turnover, and bad publicity; however, the rights
approach maintains that human rights should always take precedence over any
other consideration.
The justice approach states that in order to be ethical, decisions must treat
people equally, or at least equitably, and be based on a defensible standard.
This approach requires organizations to impose and enforce rules so that workers will receive both benefits and costs equitably. Many organizations pay their
top-producing workers more because of their larger contribution, and this is
generally considered a fair practice. The equity of other practices is not as clear.
For example, married heterosexual couples receive a number of valuable benefits
from organizations that are not afforded to homosexual partners, and many ask
whether this disparity is based on a defensible standard or whether it is unfair.
The common-good approach suggests that ethics should consider the welfare of
everyone. This approach proposes that the interlocking relationships of society
form the basis of ethical reasoning and that respect and compassion for others—
especially those who are vulnerable or defenseless—are requirements for ethical behavior. One argument for the national health care law, for example, is that
many children and much of our nation’s poor do not have access to basic health
care, which they desperately need.
The virtue approach suggests that people’s actions ought to be consistent with
certain ideal virtues that provide for the full development of humanity. These
virtues are dispositions and habits that develop through experience and help
mold character; they include honesty, courage, compassion, generosity, tolerance,
loyalty, fairness, and self-control. The virtues approach to ethical decision making
requires people to consider how decisions align with their virtues by asking themselves whether a decision will help them to become a better person and whether
an action is consistent with their character.
There are a number of advantages and disadvantages to each ethical standard. Although
the utilitarian approach results in the greatest benefit for the most people, it can also
impinge upon the welfare of many people, often the most disadvantaged members
of society. The rights approach ensures that people maintain their basic rights, which
reduces prejudice and discrimination, but it can also create a work environment that
focuses on minute laws and policies that get in the way of productivity and efficiency.
The justice approach promotes equality, but it can also create feelings of entitlement that
reduce worker motivation. The common-good approach aims not to leave anyone out of
the equation, but it is often impracticable because it fails to take into consideration the
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Section 8.8 Applying Positive Psychology to Creativity and Decision Making
CHAPTER 8
fact that budgets and resources are limited. Finally, even though all decision makers can
employ the virtue approach, not all have high standards of virtue.
The Role of Emotions in Decision Making
Conventional wisdom has long held that the best way to make rational decisions is to
remove emotions from the process (Sayegh, Anthony, & Perrewé, 2004). The assumption
has been that emotions wreak havoc on the decision-making process by distorting peoples’ ability to evaluate and interpret problems and alternatives objectively. More recently,
however, researchers have determined that instead of being irrational, emotions are critical for rational decision making. The work of Antonio Damasio, a leading neurobiologist,
is one of the major reasons for this change in thinking.
Damasio studied patients with brain lesions in the prefrontal cortex, an area of the brain
responsible for emotion. He found that these patients became emotionally neutral and,
even though they maintained all of their other cognitive functions and therefore theoretically had the ability to make purely rational choices, they ended up making irrational decisions or no decisions at all. Damasio (1994) concluded that the patients’ inability to make
rational choices was due to their lack of emotions. He argued that emotions allow people,
when facing difficult choices or uncertain outcomes, to have a hunch or a gut instinct
that some alternatives are flawed, which results in fewer irrational decisions. Decision
making, then, is a process that requires both cognition and emotion. Although cognition
is responsible for generating ideas, emotion plays the role of a regulator. Emotion helps
the decision maker decide what is important to attend to as well as what is relevant and
irrelevant about a target.
Keep in mind that not all emotions affect decision making in the same way. In general,
emotions can be categorized as either positive or negative. Each has a different impact on
decision making. Positive emotions, such as joy and serenity, have a positive impact on
decision making. People with positive emotions tend to integrate information efficiently,
adapt their problem-solving strategies, and make more creative decisions. A meta-analysis
of creativity studies found that positive emotion increased individuals’ ability to generate
ideas (Davis, 2009). In contrast, people who experience negative emotions, such as anger,
have been found to be less effective at making decisions because they do not process information accurately and often overestimate their ability to make decisions (Sinclair & Mark,
1992). Additionally, strong emotions, such as guilt, shame, fear, and anxiety, tend to distort
the way people process information and make choices.
As you can see, emotions are central to our attempt to make sense of the world. As such,
they play a very important role in rational decision making. The key to making quality
decisions is to employ constructive thinking and to maintain positive emotions.
8.8 Applying Positive Psychology to Creativity and Decision Making
You might be wondering why positive emotions lead to better and more creative decisions than negative emotions do. The answer was unclear until recently. Barbara Fredrickson (2001, 2003, 2009; Fredrickson & Joiner, 2002) developed what she calls the
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Section 8.8 Applying Positive Psychology to Creativity and Decision Making
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broaden-and-build model of positive emotions. According to this model, when we experience positive emotions, they change our thinking and our actions in two ways. First,
positive emotions broaden our thought-action repertoires. To use the terminology of the
rational decision-making model, positive emotions help us consider more options, more
alternatives, and more criteria. They also motivate us to act upon and pursue those alternatives without excessive fear, inhibition, or hesitation. This broadening effect is critical
for more rational and more creative decisions and solutions. In fact, recent studies show
that positivity, or more specifically, psychological capital, which constitutes one’s hope,
optimism, self-confidence, and resilience, is positively related to creative performance
(Sweetman, Luthans, Avey, & Luthans, 2011).
Second, positive emotions help
us build our mental, physical, social, and psychological
resources. When we experience
positive emotions, we are more
relaxed, nicer and more attractive to be around, have more
energy, and feel on top of the
world. Although these resources
may not be immediately needed
during good times, which is typically when we experience positive emotions, they gradually
accumulate during those times.
When we experience difficulPeople with positive emotions tend to make better decisions
ties, challenges, and problems
because they are able to integrate information efficiently,
at a later time, those inventoadapt their problem-solving strategies, and generate more
ries of resources come in handy.
innovative ideas.
They can be drawn upon when
we experience negative emotions, and they act as a cushion against setbacks and adversities. If we do not experience
positive emotions and accumulate those resource inventories at good times, we will feel
drained, helpless and ready to give up during bad times.
Let’s compare the broadening and building effects of positive emotions to the effects
of negative emotions. Negative emotions trigger a fight-or-flight mode, narrowing our
thought-action repertoires to familiar, tried-and-true solutions to problems. This is when
we see the dark side of bounded rationality, satisficing, and perceptual biases. Second, as
mentioned earlier, negative emotions drain our mental, physical, social, and psychological resources, leaving us too exhausted, depressed, and lonely to function optimally, let
alone excel, take control, solve problems, make decisions, and be creative.
What can managers then do to help their employees experience more positive emotions
and fewer negative emotions? There is a wide range of possibilities: Intrinsically motivating jobs, learning and growth opportunities, supportive supervision, and work-life balance
are some examples. As discussed in chapter 4, a particularly relevant approach would be
to give employees more positive feedback and recognition when they perform well rather
than just negative feedback and criticism when they perform poorly. A recent study supports the notion that when positive psychological capital (hope, optimism, confidence,
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Concept Check
CHAPTER 8
and resilience) is coupled with positive feedback, the quantity and creativity of the solutions generated by employees can be enhanced (Luthans, Youssef, & Rawski, 2011).
Summary and Conclusion
In organizations, making decisions, finding solutions to impending problems, and doing
so creatively, efficiently, and effectively are critical for success. In order for managers and
employees to make quality decisions, they need to leverage their knowledge, skills, abilities, experience, and expertise. They also need to become aware of their perceptual biases
and the limitations of human rationality. Most importantly, although we may not be perfectly rational in our decisions, our perceptions and emotions are unique to each of us
and make us each approach situations differently, which has tremendous value to our
personal, social, and professional lives.
Concept Check
1. Which of the following is NOT a main source of information people use while
making behavioral attributions?
a.
b.
c.
d.
consistency
validity
distinctiveness
consensus
2. ______ describes the common tendency for people to attribute their own successful behaviors and outcomes to dispositional characteristics, but to blame external
factors for poor behaviors and failures.
a.
b.
c.
d.
Fundamental attribution error
Attribution theory
Self-serving bias
Selective perception
3. ______ states that our reactions to others are influenced by previous interactions
with other people.
a.
b.
c.
d.
Primary effect
Selective perception
Recency effect
Contrast effect
4. Which of the following is MOST associated with the bounded rationality theory?
a.
b.
c.
d.
Tversky
Kelly
Simon
Staw
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CHAPTER 8
Key Terms
5. Which of the following is NOT a component of the three-component model of
creativity?
a.
b.
c.
d.
optimism
expertise
creative thinking
motivation
Answers: 1) b 2) c 3) d 4) c 5) a
Key Terms
anchoring bias The tendency to make
judgments based on initial information
without utilizing new information to
revise the original assessment.
attribution theory A theory about how
people establish explanations for their own
and others’ actions and the outcomes that
arise from them.
availability bias The tendency to assess
the frequency or probability of an event
based on the most readily remembered
information.
bounded rationality The notion that
humans’ limited mental abilities combined
with external factors over which they have
little or no control prevent them from making perfectly rational decisions.
broaden-and-build model of positive
emotions The notion that positive emotions broaden our thought-action repertoires and help build mental, physical,
social, and psychological resources.
common-good approach The notion
that ethics should consider the welfare of
everyone.
confirmation bias The tendency to look
for information that confirms or supports
what we believe to be true and to discount
information that disproves or does not
support it.
consensus Extent to which behavior is
common across individuals.
consistency Extent to which a behavior is
repeated over time.
contrast effect The tendency to evaluate
two things that occur close together in time
against one another rather than against a
fixed standard.
creativity Proposing a product, service, or
procedure that is both novel and useful.
debiasing judgment A process of becoming aware of cognitive biases in order to
eliminate them from the decision-making
process.
distinctiveness Extent to which the
behavior is unique to a particular situation.
escalation of commitment bias The notion
that when people make a decision, they
tend to stick with it, and the more invested
they become in their choice, the less likely
they are to abandon it, even when the costs
of the decision outweigh the benefits.
ethics Standards of behavior that provide
guidelines for how human beings ought to
act in various situations.
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Key Terms
fundamental attribution error The tendency to overattribute others’ behavior
to dispositional factors such as abilities,
traits, and motives and to underattribute
their behavior to situational factors outside
their control.
heuristics General rules of thumb that
help reduce the complexities of information
processing involved in making decisions.
hindsight bias The tendency for people to
believe that they could have predicted the
correct outcome after they know the actual
outcome.
justice approach The notion that in order
to be ethical, decisions must treat people
equally, or at least equitably, and be based
on a defensible standard.
perception The process by which people
bring meaning to their world by organizing and interpreting the stimuli around
them.
primacy effect The tendency to rely on
information gathered from earliest experiences with a target or series of targets.
CHAPTER 8
rights approach The notion that an ethical decision is one that best protects and
respects people’s moral rights.
satisficing The notion that the decision
maker establishes an adequate level of
acceptability for the outcome to a problem, and then screens alternative solutions
until one is deemed to be satisfactory or
sufficient.
selective perception The tendency to pay
attention to people, objects, or events that
stand out.
self-serving bias The tendency for people
to attribute their own successful behaviors
and outcomes to dispositional characteristics and to blame external factors for poor
behaviors and failures.
stereotyping When we categorize information, the tendency to assume that
objects, people, or experiences that fall into
the same group share more characteristics
than they actually do.
sunk costs Permanent losses of resources
incurred as the result of a decision.
rational decision-making model The
process of identifying and selecting the
outcome of maximum value to the organization through six steps: defining the
problem, identifying the criteria for the
solution, weighing the criteria, generating
alternatives, rating alternatives according
to the criteria, and computing the optimal
decision.
three-component model of creativity A
model that proposes that creativity is the
result of a person’s expertise, creativity
skills, and motivation.
recency effect The tendency to rely on
information gathered from their most
recent experiences with a target or series of
targets.
virtue approach The notion that people’s
actions ought to be consistent with certain ideal virtues that provide for the full
development of humanity.
utilitarian approach The notion that an
ethical decision is one that provides the
most amount of good while doing the least
amount of harm.
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8
Making Good Decisions at Work: Theories
of Problem-Solving and Creativity
Learning Objectives
After reading this chapter, you will be able to
1. Describe how perceptions affect your judgment of others
2. Compare and contrast rational decision making with bounded rationality
3. List and discuss the common decision-making biases
4. Discuss techniques for improving individual decision making and problem solving
5. Consider how emotions affect decision making and problem solving
6. Explain how positivity impacts creativity and decision making
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Section 8.1 The Importance of Perception
CHAPTER 8
8.1 The Importance of Perception
Perception is the process by which people bring meaning to their world by organizing and
interpreting the stimuli around them. Objective reality is often much different from perceived reality, however, and one person’s reality may be significantly different from another’s. Consider this situation: A manufacturing company is merging with another company,
giving it the greatest market share and profitability in the industry. The CEO decides to
share this exciting news with the rest of the company. After a series of presentations in
which he makes a convincing case for the merger
and the positive impact it will have on the company and its employees, the CEO asks a group of
employees for their opinion. The CEO is shocked
to hear the employees make comments such as “I
don’t understand why we made this move” and
“In the long-term, this won’t help the company.”
The CEO cannot understand why the employees
aren’t viewing this opportunity as positively as
the board of directors and senior management.
What’s going on? Unfortunately, what the CEO
failed to realize was that the employees’ perceptions of the current merger were influenced by bad
experiences from two years earlier, when the CEO
had made the decision to roll out a defective product, the company lost money, and the employees
received no pay raises.
It’s important for organizations to understand
perceptions, because perceptions impact how
workers behave. In the previous example, workers’ decisions either to accept or verbally sabotage
the merger are based on their individual perceptions, not on the CEO’s opinion or the objective
reality of the merger’s impact. The world as it is
perceived, then, is what matters most.
Objective reality is often significantly
different from perceived reality due to
perception, the process by which people
bring meaning to their world by organizing
and interpreting the stimuli around them.
Components of Perception
Humans receive stimuli through the recognized senses of hearing, sight, touch, smell, and
taste. How, then, can two people who hear or see the same information interpret it so differently? Precisely because they do not really hear and see the same information due to the
difference between sensation and perception. Sensation is the experience of the physical
characteristics of stimuli. On the other hand, perception has three separate components:
the characteristics of the perceiver, the target that is being perceived, and the situational
context in which the perception is occurring. In order for reality to be perceived, it must
move through a personal filter. As a result, no two people will ever interpret the same
event in exactly the same way. Let’s look at how each component affects perception.
The perceiver is the person who is attending to a target. A person’s interpretation of reality
is based on his or her personal characteristics, including experiences, emotions, motives,
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Section 8.1 The Importance of Perception
CHAPTER 8
values, culture, and physical abilities. Our personal experiences are some of the most
significant influences on perception because they lead us to develop expectations. If, for
example, you worked for a manager who treated you with consideration, mentored you,
and helped you attain a promotion, your experience might lead you to trust all organizational leaders and give them the benefit of the doubt. The reverse might be the case if,
on the other hand, you worked for an overbearing, capricious manager who treated you
poorly. The perceiver’s emotional and physical states also affect perception. Generally,
people see what they want to see; when in positive moods, people view targets more
positively and vice versa. Finally, people who are ill or otherwise physically impaired
(forgetting to wear their glasses, for example) will likely perceive a target differently than
they normally would.
The target is one of the stimuli to which the perceiver is attending. People are bombarded
with countless stimuli throughout the day, but they consciously perceive only those to
which they actually pay attention. Depending on the stimuli, a target may receive more
or less attention from the perceiver. Attractive people (targets), for example, get noticed
more than unattractive people, as do high-status targets or targets that share characteristics with or hold personal interest for the perceiver. Ultimately, the more a person attends
to a target, the more information she will be able to learn about that target. However, even
close attention is unlikely to uncover all of a target’s details; the causes of an event or the
emotions behind a coworker’s behavior, for example, often remain hidden. Ambiguity or
lack of information about a target can therefore prompt the perceiver to make additional
subjective interpretations about it.
The situation is the context (social, physical, etc.) in which the target is being perceived.
Situations can affect whether a target receives any attention and thus whether it is perceived. For example, if you went to a party at the beach and a guest arrived wearing a
three-piece suit instead of a bathing suit, you might think it unusual and observe him
closely, wondering who he is and why he is there. If, on the other hand, you were at a
wedding reception and the same man, dressed in the same suit, walked in the room, you
might not even notice he was sitting at the table next to you. In the first situation, the
man’s dress is unusual for the social context, but in the second, it fits. Thus, even though
the target and perceiver in this example are the same, different perceptions are created by
different situations.
Attribution Theory: Perceiving Causes and Motives
Some of the most common perceptions we make are about other people. As mentioned
earlier, we rarely have access to all the information about a target, and this is especially
true when the target is a person. Without complete information, our interpretations of others can never be perfect. How, then, are we able to make judgments of people? Attribution
theory provides a framework for understanding this process.
Developed by Harold Kelley in 1967, attribution theory describes how people establish
explanations for their own and others’ actions and the outcomes that arise from them.
When we think a person’s behavior is caused by his or her innate personal characteristics, we are attributing it to dispositional, or internal, factors. Conversely, when we
think behavior is caused by factors outside a person’s control, we are attributing it to
situational, or external, factors. As you might expect, continued experience with the
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Section 8.1 The Importance of Perception
CHAPTER 8
behavior of a target person will increase the amount of information we receive to help
us determine whether behavior is dispositional or situational (Kelley, 1973). For example, if a new employee turns in a very important project late, a manager might attribute
this behavior to the person’s
being lazy or disorganized,
both internal characteristics.
On the other hand, if the manager was aware from previous
interactions that the employee
had been having computer difficulties or that he had trouble
getting key information from
another department, the late
assignment might instead be
attributed to external factors.
Attribution theory describes how people establish explanations
for their own and others’ actions and the outcomes that arise
because of them. Context influences how people perceive the
actions of those around them.
•
•
•
Let’s look now at the different
types of information people
gather as they make behavior
attributions. According to attribution theory, there are three
main sources:
Consistency. Does the same thing happen every time? Perceptions of a behavior are based partly on how consistently that behavior is displayed. Think of a
rude retail-store clerk. The more consistent the behavior (customer complaints
are received about the clerk every few weeks), the more likely the observer will
attribute the behavior to internal characteristics (the clerk has poor customerservice skills). On the other hand, inconsistent behavior (a complaint has never
been received about this clerk) is more easily attributable to external factors (the
customer was being difficult and unreasonable).
Consensus. Would other people act similarly in the same situation? If most
people facing the same or a similar situation respond with the same or similar
behavior, that behavior is said to show consensus. If a sales representative failed
to meet his monthly sales quota, his behavior would show consensus if all of the
other representatives also failed to meet their quotas. The high consensus would
likely clue the manager to look for external causes (e.g., slow economy, defective
product, ineffective marketing strategy) for the poor sales numbers. Conversely,
if the representative was the only one on the team not to make quota, the manager would likely attribute the poor performance to the rep’s internal characteristics (e.g., laziness, ineffective communication skills).
Distinctiveness. Do other situations and stimuli elicit the same behavior? Behaviors that are uncharacteristic of a specific person are more likely to be attributed
to external causes and vice versa. An employee who often comes to work late
but never has trouble with completing projects on time might lead a manager
to wonder if child-care arrangements, transportation challenges, or other external factors are interfering with the employee’s morning commute. If another
employee is always late—arriving at work late, turning in projects late, returning
phone calls late, and so forth—the manager might attribute the behavior as being
caused by the employee’s inherent tendency to procrastinate.
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Section 8.1 The Importance of Perception
CHAPTER 8
In summary, then, low consistency, high consensus, and high distinctiveness tend to lead
to external behavior attributions, whereas high consistency, low consensus, and low distinctiveness tend to lead to internal behavior attributions. Keep in mind that external and
internal attributions are, by themselves, neither good nor bad. Depending on the circumstance, however, the target may think one more desirable than the other. Olympic swimmer Michael Phelps, for example, achieved his success by demonstrating high consistency
(consistent practice and high performance), low distinctiveness (winning 14 gold and two
bronze medals over the course of two Olympic Games), and low consensus (extraordinary
natural talent and relentless drive to succeed). Most of us would unquestionably attribute
Phelps’ success more to these internal sources and not just to luck, good coaching, or a hightech swimsuit. In this case, then, an internal attribution is quite positive; after all, we all
want others to believe we achieve success based on our own merits and not because someone gave it to us. In other situations, we may hope for the reverse. Being late to work, breaking a valuable piece of equipment, making a mistake on a huge project: These are the times
when we want others to attribute the outcome to something—anything!—but ourselves.
Despite their best efforts, however, people make mistakes when they try to figure out why
others act the way they do. Research has shown that we are very aware of others’ behavior, and that this high level of attention leads us to overattribute behavior to dispositional
factors such as abilities, traits, and motives and to underattribute behavior to situational
factors outside of the target’s control (Ross, 1977). This tendency is so common that it is
known as the fundamental attribution error. The fundamental attribution error helps
explain how managers can attribute an employee’s tardiness one morning to laziness and
poor judgment instead of the ten-car pileup he heard about on his drive in to work. In
contrast, the self-serving bias describes the common tendency to attribute our successful
behaviors and outcomes to dispositional characteristics but to blame external factors for
poor behaviors and failures (Jones & Nesbitt, 1971).
Consider This: Your Own Attributions
• Think about a recent positive event that happened in your life. It can be personal (e.g., finished
a difficult home-improvement project), social (met a special person), or professional (got a
promotion).
• To what extent do you believe that this event should be attributed to internal or external causes?
• Think about the causes that led to the event. To what extent are those causes characterized by
consistency, consensus, and distinctiveness as described earlier?
• Are your findings consistent with Kelley’s attribution theory?
• Now think about a recent negative event in your life. Again, it can be personal, social or
professional.
• Analyze the event in terms of consistency, consensus, and distinctiveness, as well as internal
and external attributions as you did before.
• Repeat this exercise with additional positive and negative events. Choose events that are
important to you.
• Now consider positive and negative events that took place in the lives of people close to you.
They can be friends, family members, coworkers, or classmates. Analyze the event in terms of
consistency, consensus, and distinctiveness, as well as internal and external attributions as you
did before.
• Do you have predominant attribution biases for events in your own life? In others’ lives?
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Section 8.2 Shortcuts in Person Perception
CHAPTER 8
8.2 Shortcuts in Person Perception
Humans have a limited capacity to attend to and interpret the myriad of stimuli to which
they are exposed every day. In order to function in our complex world, we use a number
of shortcuts to streamline and simplify the process of perception. Although these shortcuts are valuable for making quick, accurate evaluations, they are certainly not perfect.
Trouble occurs when they are overused or used to make overgeneralizations, which can
lead to significant distortion of a target’s actual characteristics. One of the best ways to
mitigate distortion is to learn about different perception shortcuts and recognize how each
can mar our judgments.
Primacy and Recency Effects
When people attempt to evaluate and make sense of their world, they tend to rely on
information gathered from their earliest as well as most recent experiences with a target
or series of targets. The primacy effect is the tendency to rely on information gathered
from our earliest experiences with a target or series of targets. The recency effect, on the
other hand, is the tendency to rely on information gathered from our most recent experiences. In the workplace, the primacy effect often influences the way interviewers evaluate
potential job candidates. First impressions, such as clothing, timeliness, or even a firm
handshake, can have a big impact on the interviewer’s judgment of a candidate’s suitability for a job. After seeing a series of job candidates, interviewers also tend to remember
more clearly their interactions with the earliest (primacy effect) and most recent (recency
effect) candidates.
Selective Perceptions
For safety and other reasons, people need to be able to make quick judgments about their
environment. Therefore, we tend to pay attention to people, objects, and events that stand
out. This tendency to make selective perceptions extends to the social realm, as well:
We’ll notice the loud and colorful woman at a party or the jocular, well-dressed man at a
conference but not their more subdued counterparts. In general, we attend more closely
to stimuli that are loud, attractive, or have something in common with us. By selectively
attending to certain characteristics, we are able to speed up our evaluations of people and
more quickly make sense of the world. As you might recall from chapter 4, people also
tend to give more attention to negative or threatening events or stimuli for the same reasons: They stand out more, and they signal a need for more immediate action.
Contrast Effect
According to the contrast effect, our reactions to others are influenced by previous interactions with other people. When two things appear close together in time, we tend to
evaluate them against one another rather than against a fixed standard. For example, an
extravert appears more gregarious when in a crowd of introverts. In an interview situation, a stellar candidate may make the next candidate lose some of her luster. Similarly, if
a longtime coworker retires, her replacement may never seem to be able to measure up,
regardless of the new coworker’s actual performance.
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Section 8.3 The Role of Perception in Decision Making
CHAPTER 8
Stereotyping
Stereotyping occurs when we categorize information and assume
that objects, people, or experiences
that fall into the same group share
more characteristics than they
actually do. Stereotypes are quick
and easy and help keep us from
having to relearn the same information over and over again. Think
how difficult life would be if we
faced a flight of stairs as a completely new invention every time
we happened upon a flight we had
never climbed, or if we had to start Because stereotypes are based on assumptions,
from scratch every time Microsoft characteristics are often falsely attributed to individuals.
Office was updated! Of course, For instance, people often think that women are weak and
stereotypes quickly get muddled emotional due to stereotyping.
when we use them with people.
Any time stereotypes are based on group status, such as age, gender, religion, ethnicity,
or race, discrimination can occur. “Women are weak and emotional,” “senior citizens are
slow,” “overweight people have no discipline”—each of these stereotypes assumes that
people in specific groups are all the same, even though the range of human experience and
identity is so extraordinarily diverse that such assumptions are, if we stop to think about
it, illogical. Even though stereotypes can result in erroneous perceptions of an individual’s
actions, beliefs, and abilities, they are, unfortunately, one of the first tools we use when
encountering any new situation. Therefore, it is critical that we gather additional information about others and revise our initial impressions to ensure that we do not unfairly apply
stereotypes and fall into the trap of discrimination.
Consider This: Perceptual Biases
• Recall a time that you were wrong in judging somebody’s character, motives, or actions.
• What are some of the attributes or behaviors of that person that led to your wrong judgment?
• To what extent did some of the perceptual biases discussed earlier contribute to your wrong
judgment?
• What did you learn from that experience? Did it make you more aware of your biases? How will
you handle similar people or situations differently in the future to mitigate those perceptual
biases?
8.3 The Role of Perception in Decision Making
One of the most important actions for both managers and employees is making decisions.
Managers make decisions about whom to hire and what products to sell, processes to
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Section 8.3 The Role of Perception in Decision Making
CHAPTER 8
implement, and resources to allocate, just to name a few. Employees make decisions on
how to structure their work, deal with customer challenges, and improve product quality—again, just to name a few. How we make decisions, as well the quality of the decisions
themselves, is based largely on perceptions.
The first step in the decision-making process is determining that a problem exists. Because
problem identification is discretionary, perceptions play an important role in this step. For
example, an inexperienced manager may see a 5% drop in customer-satisfaction scores
as a major problem that requires immediate attention, whereas an experienced manager
may perceive the drop to be acceptable because
she knows that such scores always go down temporarily after the launch of a new product. What
one person perceives to be a problem may not be
viewed as one by another person.
Perceptions also affect the way we interpret and
evaluate information, an essential part of making a decision after a problem has been identified.
Once again, people have choices about the data
and information they will gather to help them
understand or solve problems. Individual perceptions guide beliefs about what information may
be relevant to the decision. For example, a college
student might consider price the most important
factor when purchasing a car, whereas a farmer
might put greater importance on towing capacity.
Finally, perceptional distortions like stereotyping
can bias both analyses and conclusions.
How managers make decisions including
whom to hire and what to sell is based
largely on perceptions.
As you can see, perceptions play a critical role in
the decision-making process. In the next section,
we will examine the p...
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