PERCEPTION AND DECISION-MAKING

MAN101: Principles of Management

 Today’s six big ideas
• Who and what we are influences how we see reality.
• We all have numerous biases and shortcuts in our
perception and decision-making.
• The rationality in our decision-making is bounded
(limited).
• Intuition compliments our bounded rationality.
• We make attributions about whether other people’s
behaviour is internally- or externally-caused.
• Certainty is rare, risk is common, and uncertainty is
uncertain.
 Differences in perception
• “Research on perception consistently
demonstrates that individuals may look at the
same thing yet perceive it differently.”
(Textbook, p. 477)
• The number of things that could influence how
one individual person views reality is vast (e.g.
differences in brain biology, personality,
motives, interests, experiences, education,
expectations, etc. etc.).
• But perception is also influenced by what or who
is being perceived, not just who is perceiving it.
• Perception is also influenced by the environment
and the circumstances (e.g. time; setting) of who
is perceiving and who or what is being perceived.
 Cognitive Biases and Perceptual Shortcuts

• “Even though managers may use ‘rules of thumb’ to [simplify their decision-
making], that doesn’t mean those rules are reliable. Why? Because they may
lead to errors and biases in processing and evaluating information.” (Textbook,
p. 86)
• Differences in how we perceive reality make different people more or less
likely to process some information and overlook other information.
• Because information is so complex, our minds require to the ability to simplify
information so we can make sense of it – but this means we sometimes
automatically miss important information.
 Bounded Rationality
• “Managers make decisions rationally, but are limited (bounded) by their
ability to process information. Because they can’t possibly analyze all
information on all alternatives... they accept solutions that are ‘good
enough.’ They’re being rational within the limits (bounds) of their ability to
process information.” (Textbook, p. 78)
• Humans are not computers. We cannot fully objectively analyze information
with precise rationality.
• Effective decision-making as a manager often depends on your ability to
execute an optimal decision with non-optimal information.
• Even with good quality information, we don’t always have the time or energy
to accurately analyze all of it.
• Good decision making is about satisficing (“this decision is good enough.”)
 Intuitive Decision Making
• “Making decisions on the basis of experience,
feelings, and accumulated judgment.”
(Textbook, p. 79)
• Intuition is fast, effortless, and unconscious.
• Intuition is about “thinking with our gut”,
more than “thinking with our mind.”
• But intuition is not magical or a sixth sense. It
is simply information that our mind can access
without our direct awareness that we are
accessing it.
• Intuition compliments our bounded rationality.
• But our intuitions can be misguided.
 Attribution Theory
• How we judge others based on attributions we make about their behaviour,
and whether it was internally- or externally-caused:
• Internally-caused behaviours are those we attribute to individual control.
• Externally-caused behaviours are those we attribute to situational factors.

• Fundamental attribution error: Over-estimating internal factors and under-

estimating external factors in others’ failures (i.e. “Too quick to blame the
person and not the situation.”)

• Self-serving bias: Over-estimating external factors and under-estimating

internal factors in our own failures (i.e. “Too quick to blame the situation and
not ourselves.”)
 Certainty, Risk, and Uncertainty
• Certainty: “A situation in which a manager can make accurate
decisions because all outcomes are known.”
• Risk: “A situation in which the decision maker is able to estimate the
likelihood of certain outcomes.”
• Uncertainty: “A situation in which a decision maker has neither
certainty nor reasonable probability estimates available”
(Textbook, p. 84)

• As a manager, certainty allows you to use rationality exclusively;

uncertainty forces you to use intuition exclusively; and risk
demands that you combine rationality with intuition.