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Perceptual Errors in Managerial Decisions

Discuss how perceptual errors, attributions and biases are important in managerial decisions.

In the modern day business, effective decision making is highly required in the firm. This is due to the reason that there are many decisions that are of strategic importance. If such decisions are not taken in a proper manner then firm can face lose to their competitors (Johnson, Blumstein, Fowler & Haselton, 2013). There are various factors that influence the managerial decision making and any firm needs to control these factors so as to make a better decision. Environment and the internal factors including the approach of leader and managers play a very vital role in the decision making of an organisation. As an organisation it is crucial that they dilute the influencing factors so that any decision must not be taken under pressure (Zhang & Bazerman, 2011). Among the various factors that influences decision making, some of them are related with the leadership and management inside the firm. Some of these factors are described below.

First factor that influences managerial decision making is perceptual errors. This factor is crucial as well as dangerous for the managerial decisions. Perceptual error is generally considered as not seeing what reality is or in other words it is understood to be illusion that is considered as reality (Reiman & Rollenhagen, 2011). Perceptual errors can be distributed into several type namely stereotyping, horn effect, halo effect, primary effect, recency effect. All these factors need to be properly taken care of so as to assure that the taken decisions are in favour of the organisation. This can be understood by the fact that if the managers have any kind of perception regarding anything they cannot make effective decisions. It becomes important as the people who are responsible for making of the decisions must not be in state of illusions. Any decisions that are based on the stereotyping or horn effect may not be effective or may lack consistency. They are important because illusions make the managerial decisions to be unreliable (Frese & Keith, 2015). This can be understood by the example that making positive or negative generalisation regarding any particular category of people can make the managerial decisions to be inaccurate. Since most of the perceptual errors are based on beliefs hence it may result in decisions that are not very appropriate. For example if the management tries to promote a person who is actually not very capable and he is promoted because managers think it to be so. In such case it can be dangerous for the environment as well as the operational efficiency of the firm as wrong person can get some important responsibility.

Attributions in Managerial Decisions


Perceptual errors make decisions more incompetent and more unreasonable (Talke & Heidenreich, 2014). It also lays down the morale of the people who did not get promoted even after doing hard work. The recency effect is another crucial perceptual error that is made by the organisations. Most recent information often influences the judgement even when there is whole lot of information available at the time of decisions. This effect is more dangerous in case when the other information suggests in other ways. In other case trusting on the first information that is received by management rather than believing on the information that is received after the first one can be dangerous. This primary information based decision may not be very effective for the organisation. Another crucial aspect of the managerial decision making is similar to me effect (Martinko, Harvey & Dasborough, 2011). It is seen that favourable judgement in favour of those who are similar to managers. This demotivates other employees who are at the same or other level of the organisational structure. This gets dangerous in the case when the managers underestimate the influence of external factors while making of the decisions. Overestimation of the influence of internal factors especially when there was judgement about the other’s behaviour can also decrease the quality of the made decisions.

Along with this many a time it is seen that managers do not take ownership of their decisions and puts the blame on external factors if anything goes wrong. If the decision is not made taking ownership there is always a chance that made decisions are not very sound. Overburdened under their own belief or expectations always reduces the measurability of the decisions (Blume & Covin, 2011). This also favours decisions that are unachievable. Perceptual errors limit the accuracy in measuring the solution. The solutions obtained can be vague and can be non-meaningful for the organisation. This also limits the power of the firm to understand the problems that they are facing.


Second factor that is influencing managerial decisions is attributions. This also plays a decisive role at least at the top level of the management. This is because if the people sitting at the top of the organisational level have certain kinds of attributes then there is always a chance that governance and management of the organisation can be done in a better way. This is due to the fact that there are several qualities that must be present with any leader for making effective decisions (Siegrist & Sütterlin, 2014). Since it is the role of leaders at the top to make decisions that are of strategic importance hence significant influence of attribution can be seen. It is important that an organisation has leaders at the top management level who are capable of making important decisions with the qualities they have. Most of the time attributions play a much greater role in the process of bringing companies out of the problems that they are facing. With the attributes that any organisation’s leaders have they can make the decision making process smoother and reliable. A highly attributed leader at the frontline helps in making the day to day operations smoother. For HR management it helps in making of better relations with the employees which is crucial for improving the employee’s productivity (Harvey, Madison, Martinko, Crook & Crook, 2014). A highly capable leader helps in bringing everyone together which is necessary for the completing the task on time. A leader’s attribution suggests the ways in which an organisations decision making will proceed. In the managerial decisions, attributions of the top management play a highly supportive role. With the better attributions of top management, there is always a better chance that employees can learn (Hilary & Hsu, 2011).

Biases in Managerial Decisions

It is always favourable for the organisation to use attributions as their primary tool for the processes like HR management. This can be justified by the fact that in the processes like selection and recruitment attribution should have been the primary criteria. This helps the organisation in positioning appropriate people at the appropriate positions. This assists in bringing smoothness to the work process as people sitting at the important positions able to make quick decisions regarding the work they have to do. Experiences always acts as the best attribution that a person can have and can influence the managerial decisions he can make (Mignonac & Richebé, 2013). The more the experience of the firm, the more is their chance that they can make stable decisions. In any firm, management is full of people who are having several years of experience in their field. This helps them in making a better and sound decision which is necessary for the growth of the organisation. It is also beneficial in the case when the firm or any specific unit faces some kind of problems or challenges. It is crucial that firm also promotes attributions over anything else in the decision making process. This will also support the culture of learning where the employees will try to gain knowledge for improving their skill set. This will automatically enhance the productivity of the firm and will help in making of better managerial decisions.


Third most important factor that influences managerial decision making is biases. It is extremely important that the decision that is made by the management must not be based on any kind of biases. It can be understood by the fact that if any decision is made based on the biases then there is always a chance that it must not be successful. There are many audiences who get affected by the managerial decisions and hence it is crucial for the organisation to make sure that it is not based on the biases (Elsbach, 2013). This is due to the reason that it will demotivate people who are working at the ground level. Biases are generally generated because of some signs. Most of the time, biases are perception based rather than having any specific or significant evidences behind it. In such cases, it is also seen that managers makes decision that are more fanciful rather than being relevant. This becomes more significant in the case of frontline managers and biases tend to bring obstacle in the work process and if it is practiced for longer duration it may lead to serious business failure. Biases are crucial in the case when the data available is not significant. This can also be beneficial in the case when there is time and cot constraint attached with the obtaining of the information (Rogerson, Gottlieb, Handelsman, Knapp & Younggren, 2011). This also pushes the organisation to make decisions that are of higher quality.

Biases are attached with perceptual errors as both shows the same effect on the organisation. In most of the cases biases are bounded and are based on the emotional aspect of the managers. Emotions have bad effect on the decisions of the organisation as it makes decisions that are not fact based. On the longer run it is understood that there are people who are somehow biased on the taking decisions. These people must not be promoted to the strategic decision making process as their decisions can somehow influence the perception of other person also. This can be dangerous for the firm. The most dangerous effect of biases can be seen on the safety management. This is due to the reason that if any bias gets generated inside the firm regarding safety decision making, then there is always a chance that major failure can be possible. These decisions can lead to image failure to the firm as well as get into the loss. The biggest example of it was BP oil spill where biases and perceptual errors regarding safety equipment led to loss of lives.

All the three factors have effect on the innovation and research program of the firm and hence the company must eliminate any possible entrance of all these factors. Many a time it affects the ethical bases of the firm and hence ethical guidelines made by the company for it can help in protecting decisions from all the three. These factors have the bad effect on the managerial decisions that are based on risk management (Slovic, 2016). Companies need to think about placing the personnel at the right positions. It helps in reducing the amount of pressure that is present in handling the decision making process. A manager who have more research based or practical approach in decision making must be promoted.


In order to reduce the perceptual errors and bias company needs to strengthen their information system (Meyer, 2014). This is due to the reason that information system helps in giving the data that is exact and free from any biases. It also eliminates any kind of perceptual errors as it gives the figures that are exact and stored from different operations. This will be highly beneficial in the case of senior level management. It is also recommended that rules and regulations must be followed inside the organisation so that any preferences must not be given to any individual. Apart from this adding more and more numbers of people in the decision making process can reduce the chances of these factors influencing the managerial decisions. Learning and knowledge enhancement must be given preference so that higher attributions can be developed inside the managers at every stage (Myers, Staats & Gino, 2014). This will help improving the quality of decisions made by them. All these helps in working of all the audience but it will specifically favour senior level management.

In the concluding remark it can be said that it is important that an organisation understands the effect of these factors on their performance. This can somehow be related to the organisational behaviour and hence companies must focus on understanding of the behaviour of the personnel sitting at the top positions in the company. Decisions that are made based on the biases generally leads to huge amount of loss as the relevant data is often ignored in this case.

References

Blume, B. D., & Covin, J. G. (2011). Attributions to intuition in the venture founding process: Do entrepreneurs actually use intuition or just say that they do?. Journal of Business Venturing, 26(1), 137-151.

Elsbach, K. (2013). Perceptual biases and misinterpretation of artifacts. In Artifacts and Organizations (pp. 77-98). Psychology Press.

Frese, M., & Keith, N. (2015). Action errors, error management, and learning in organizations. Annual review of psychology, 66, 661-687.

Harvey, P., Madison, K., Martinko, M., Crook, T. R., & Crook, T. A. (2014). Attribution theory in the organizational sciences: The road traveled and the path ahead. The Academy of Management Perspectives, 28(2), 128-146.

Hilary, G., & Hsu, C. (2011). Endogenous overconfidence in managerial forecasts. Journal of Accounting and Economics, 51(3), 300-313.

Johnson, D. D., Blumstein, D. T., Fowler, J. H., & Haselton, M. G. (2013). The evolution of error: Error management, cognitive constraints, and adaptive decision-making biases. Trends in ecology & evolution, 28(8), 474-481.

Martinko, M. J., Harvey, P., & Dasborough, M. T. (2011). Attribution theory in the organizational sciences: A case of unrealized potential. Journal of Organizational Behavior, 32(1), 144-149.

Meyer, W. G. (2014). The effect of optimism bias on the decision to terminate failing projects. Project Management Journal, 45(4), 7-20.

Mignonac, K., & Richebé, N. (2013). ‘No strings attached?’: How attribution of disinterested support affects employee retention. Human Resource Management Journal, 23(1), 72-90.

Myers, C. G., Staats, B. R., & Gino, F. (2014). “My Bad!” How Internal Attribution and Ambiguity of Responsibility Affect Learning from Failure. Harvard Business School Working Paper 14-104, 1-53.

Reiman, T., & Rollenhagen, C. (2011). Human and organizational biases affecting the management of safety. Reliability Engineering & System Safety, 96(10), 1263-1274.

Rogerson, M. D., Gottlieb, M. C., Handelsman, M. M., Knapp, S., & Younggren, J. (2011). Nonrational processes in ethical decision making. American Psychologist, 66(7), 614.

Siegrist, M., & Sütterlin, B. (2014). Human and Nature?Caused Hazards: The Affect Heuristic Causes Biased Decisions. Risk Analysis, 34(8), 1482-1494.

Slovic, P. (2016). The perception of risk. Routledge.

Talke, K., & Heidenreich, S. (2014). How to overcome pro?change bias: incorporating passive and active innovation resistance in innovation decision models. Journal of Product Innovation Management, 31(5), 894-907.

Zhang, T., & Bazerman, M. H. (2011) Retrieved from: https://www.columbia.edu/~tz2287/uploads/2/1/7/3/21738392/managerial_decision_biases.pdf

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