Perception, cognitive biases and decision making

Each of us make hundreds or even thousands of decisions every day. Probably we don’t even notice most of them because they can be not too relevant. However, there are some decisions that require more attention from us, so we devote time and effort to organize and structure a vast amount of information in our head to ensure we make the right decision. It  is during this process of thinking and evaluating the inputs we have in our reach that perception plays a key role. In management, perception biases and decision making can lead to severe mistakes, so that is why it makes sense to devote a review on this topic.

Perception

Perception is the way in which we interpret messages from our senses to provide some order and meaning to our environment. Perception also acts as a mediating variable that influences our behavior, and it is through perception that we select data and organize it into meaningful information for us.

The role of schemes in perception and decision making

A schema is a mental template that individuals impose on an information environment to give it form and meaning. This constructs allow to systematize knowledge and organize information about other people, situations, objects, and ideas that are generated through experience. Moreover, schemes allow us not having to organize sensory data from scratch every time we perceive it and speeds our decision making process. Schemes can also act as heuristic devices or rules of thumb for judging other people and judging all kind of situations. Nevertheless, these heuristics can bias our decision making in harmful ways. Schemes can be specific to a certain domain but can also be common to everyone, turning this way into cognitive biases.

Attribution theory, or the perception of others

The attribution theory tries to explain how people identify the reasons (internal or external) for other people behaviors. It mainly depends on these three factors:

  • Distinctiveness. E.g. if someone is arriving late, is that something that surprises us from that person? High: External vs. Low: Internal.
  • Consensus. E.g. do others also arrive late? High: External vs. Low: Internal.
  • Consistency. E.g. does he or she always arrive late? High: Internal vs. Low: External.

We should consider the existence of the fundamental attribution error that is the tendency to underestimate the influence of external factors when judging others. On the other hand, there could be also self-serving bias, meaning that we tend to attribute our failures to external causes and our success to us.

Cognitive Biases in Judging Others

 When judging other we might also face the following cognitive biases:

  • Selective perception – when we tend to focus our attention on issues that relate to our own interests, experiences, attitudes, not only when judging others, but in any situation.
  • The halo effect – when there’s a tendency to draw a general impression about an individual on the basis of a single characteristic.
  • The contrast effect – when the evaluation of the characteristics of a person is affected by comparisons with other people recently encountered who can rank higher or lower on the same characteristics.
  • Stereotyping – when we judge someone on the basis of our perception of the group to which the person belongs.

Cognitive Biases in Decision Making

And when it comes to decision making, we need to be sure that we are aware of the following cognitive biases that could have a significant impact on our decisions:

  • Overconfidence bias – when we have excessive confidence in our own answers to questions.
  • Confirmation bias – when we have tendency to seek out information that reaffirms past choices and to discard information that contradicts them.
  • Availability bias – when we have tendency to base our judgments on the more recent information.
  • Escalation of commitment – when we stay with a decision even when there is clear evidence that it is wrong.

Cognitive Determinants of Escalation of Commitment

I would like to focus on the escalation of commitment as one of the most evident cognitive bias. It takes place when decision makers tend to stick to a previous course of action and keep investing resources despite objective evidence suggesting that staying the course is unwise. This can be related to the concept of sunk costs and reflects the need to be able to stop, take a deep breath, and be able to recognize own mistakes. Those leaders who fail to be able to do so are at a great risk of not only loosing their reputation, but also loosing their company.

Some common cognitive explanations for escalation of commitment are:

  • Self-justification theory – when attempting to prove oneself of being right in having made a decision.
  • Confirmation bias – when looking for supporting evidence.
  • Loss aversion – when we tend to perceive losses to be larger than gains, and as a result we want to prevent losses by all means.
  • Impression management – when we try to avoid giving a negative image in front of others.

The proximity to completion and personal responsibility are also two factors that make escalation much more likely to happen, so we need to be aware of that as well. We should also do the link between the escalation of commitement and the concept of “core self-evaluation” that was discussed in our post “Do individuals’ personality traits affect performance?” because those employees who would have high “core self-evaluation” would be less proclive to enter in the spiral of the escalation of commitment.

We can reduce the possible biases in our perception if we understand the impact on our decision making process. By remaining objective, we will manage to increase the quality of our decisions, and that will benefit our organization.

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