8Decision Making, Problem Solving, and Creativity


8Decision Making, Problem Solving, and Creativity

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Learning Outcomes After reading this chapter, you should be able to

• Describe how perceptions affect your judgment of others.

• Compare and contrast rational decision making with bounded rationality.

• List and discuss the common decision-making biases.

• Discuss techniques for improving individual decision making and problem solving.

• Consider how emotions affect decision making and problem solving.

• Explain how positivity impacts creativity and decision making.

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Section 8.1 The Importance of Perception

8.1 The Importance of Perception Perception is the process people use to bring meaning to their world; it involves organizing and interpreting the stimuli around us. Objective reality is often much different from per- ceived 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 states 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 are not viewing this opportunity as positively as the board of directors and senior management. What’s going on?

Unfortunately, the CEO failed to realize that the employees’ perceptions of the current merger were influenced by bad experiences from 2 years earlier, when the CEO decided to roll out a defective product, the company lost money, and the employees did not receive any pay raises.

It is important that organizations understand perceptions, because perceptions impact work- ers’ behavior. In the previous example, whether workers accepted or verbally sabotaged the merger were based on their individual perceptions—not on the CEO’s opinion or the objec- tive reality of the merger’s impact. The world as it is perceived, then, is what matters most.

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 differ- ently? The reason is precisely because they do not really hear and see the same information; this is due to the difference between sensation and perception. Sensation is the experience of stimuli’s physical characteristics. On the other hand, perception has three separate com- ponents: the characteristics of the perceiver, the target that is being perceived, and the situ- ational 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, val- ues, 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 get a promotion, your experience might lead you to trust all organizational leaders and give them the benefit of the doubt. The reverse might be true 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.

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Section 8.1 The Importance of Perception

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 atten- tion from the perceiver. Attractive people (targets), for example, get noticed more than unat- tractive 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 it. 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. Situ- ations can affect whether a target receives any attention and thus whether it is perceived at all. 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 into 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 explana- tions 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 behav- ior 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, or dispositional, characteristics. On the other hand, if the manager was aware from previous interactions that the employee had been having com- puter difficulties or that he had trouble getting key information from another department, the late assignment might instead be attributed to external, or situational, factors.


The woman giving this presentation is the target for all of the perceivers in her audience. The amount of attention paid to her presentation will vary from person to person.

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Section 8.1 The Importance of Perception

Let’s look now at the different types of information people gather as they make behavior attri- butions. 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 it is displayed. Think of a rude retail-store clerk. The more consistent the behavior (customers complain about the clerk every few weeks), the more likely the observer will attribute the behavior to internal charac- teristics (the clerk has poor customer service skills). On the other hand, inconsis- tent 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 her monthly sales quota, her behavior would show consensus if all of the other repre- sentatives 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, ineffec- tive 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? Behav- iors 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 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 due to the employee’s inherent tendency to procrastinate.

In summary, then, low consistency, high consensus, and high distinctiveness tend to lead to external behavior attributions, whereas high consistency, low consensus, and low distinc- tiveness tend to lead to internal behavior attributions. Keep in mind that external and inter- nal attributions are, by themselves, neither good nor bad. Depending on the circumstance, however, the target may think one is more desirable than the other. For example, Olympic swimmer Michael Phelps achieved his success by demonstrating high consistency (consistent practice and high performance), low distinctiveness (winning 14 gold and 2 bronze med- als 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’s success more to these internal sources and not just to luck, good coaching, or a high-tech 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 handed 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

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Section 8.2 Shortcuts in Person Perception

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 10-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 out- comes to dispositional characteristics but to blame external factors for poor behaviors and failures (Jones & Nesbitt, 1971).

Consider This: Your Own Attributions Think about two to three positive events that recently happened in your life. They can be personal (perhaps you finished a difficult home improvement project), social (met a special person), or professional (got a promotion).

Now think about two to three recent negative events in your life. Again, these can be personal, social, or professional. Choose events that are important to you.

Finally, consider positive and negative events that happened to people close to you. They can be friends, family members, coworkers, or classmates.

Questions to Consider

1. To what extent do you believe each of these events should be attributed to internal causes? What about external causes?

2. Think about the causes that led to these events. To what extent are those causes charac- terized by consistency, consensus, and distinctiveness?

3. Are your findings consistent with Kelley’s attribution theory? 4. Do you have predominant attribution biases for events in your own life? In others’ lives?

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 cause us to signifi- cantly distort 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 infor- mation 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 ear- liest 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

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Section 8.2 Shortcuts in Person Perception

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 more clearly remember 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. For example, we are likely to 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 pay more attention to negative or threatening events or stimuli for the same rea- sons: They stand out more and signal a need for more immediate action.

Contrast Effect According to the contrast effect, our reactions to others are influenced by previous interac- tions 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 extrovert appears more sociable when in a crowd of introverts. In an interview situation, a stellar can- didate may make the next candidate lose some of her luster. Similarly, if a longtime coworker retires, his replacement may never seem to be able to measure up, regardless of the new coworker’s actual performance.

Stereotyping Stereotyping occurs when we categorize in- formation and assume that objects, people, or experiences that fall into the same group share more characteristics than they actu- ally 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 from scratch every time Microsoft Office was updated!

Of course, stereotypes quickly get muddled when we use them with people, and they can be counterproductive in today’s diverse workplaces. Anytime stereotypes are based

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Stereotyping allows us to quickly categorize these people into their different professions, but it can also be harmful.

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Section 8.2 Shortcuts in Person Perception

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 dis- cipline”—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: Common Stereotypes The following videos present stereotypes in a humorous yet eye-opening way.

What Kind of Asian Are You?

What Are the American Stereotypes?

Childhood Gender Roles in Adult Life

Questions to Consider

1. Recall situations when you treated others stereotypically. What were your stereotypes? Were they accurate or justified?

2. Recall situations when others treated you stereotypically. Were their stereotypes accu- rate or justified?

3. What were some of the lessons you learned from these situations? 4. How do you think these stereotypes can affect how you treat others or how others treat

you in the workplace? 5. How should organizational leaders take these stereotypes into consideration when

dealing with a diverse workforce?

Consider This: Perceptual Biases Recall a time that you were wrong in judging somebody’s character, motives, or actions.

Questions to Consider

1. What are some of the attributes or behaviors of that person that led to your wrong judgment?

2. To what extent did some of the perceptual biases discussed earlier contribute to your wrong judgment?

3. 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?

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Section 8.3 The Role of Perception in Decision Making

8.3 The Role of Perception in Decision Making One of the most important things both managers and employees do is make decisions. Manag- ers make decisions about whom to hire and what products to sell, which processes to imple- ment, and what resources to allocate, to name a few. Employees make decisions about how

to structure their work, deal with customer challenges, improve product quality, and many other things. How we make decisions—as well the quality of our decisions—is based largely on our perceptions.

The first step in the decision-making process is to deter- mine that a problem exists. Because problem identifica- tion is discretionary, perceptions play an important role in this step. For example, an inexperienced manager may interpret a 5% drop in customer satisfaction scores as a major problem that requires immediate attention; an experienced manager, on the other hand, may perceive the drop to be acceptable because she knows that such scores always go down temporarily after a new product is launched. What one person perceives to be a problem may not be viewed as problematic by another person.

Perceptions also affect the way we interpret and evalu- ate information, which is 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 informa- tion may be relevant to the decision. For example, a col-

lege student might consider price the most important factor when purchasing a car, whereas a farmer might put greater importance on a vehicle’s towing capacity. Finally, like stereotyp- ing, perceptional distortions can bias both analyses and conclusions.

As you can see, perceptions play a critical role in the decision-making process. In the next section, we will examine the process of making decisions, biases that affect this process, 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 spread it across all three.


Managers base their decisions— such as whom to hire and what to sell—largely on their perceptions.

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Section 8.3 The Role of Perception in Decision Making

• You are the corporate acquisitions 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?

Though each of these decision-making situations is unique, all three share some characteris- tics. 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.

The 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 previous sample scenarios. This is not always the case, however, and manag- ers 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 prob- lem after a series of line shutdowns, an assembly-line manager might investigate fur- ther 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 com- pany 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 releas- ing 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 addi- tional 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

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Section 8.3 The Role of Perception in Decision Making

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 pre- dict which product—the innovative, expensive item or the less expensive revamp— will ultimately be most profitable will be tricky, indeed. This 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; however, the second alternative 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 calcu- lated 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 mak- ers will always be influenced by subjective factors such as emotions and perceptual biases. They are limited by their ability to acquire and process information and their ability to cre- atively generate alternatives. Time constraints, budgets, and political considerations also interfere with perfect rationality. These limitations inspired a decision-making model based on the more realistic assumption of bounded rationality.

Bounded Rationality Herbert A. Simon was an American sociologist, psychologist, economist, and political scien- tist whose research engendered an amazing number of important scientific topics, including artificial intelligence, information processing, and decision making, to name a few. In 1957 he proposed that a number of bounds, or limitations, interfere with people’s ability to make deci- sions. His theory of bounded rationality states that humans’ limited mental abilities com- bined 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 “sat- isfice” 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).

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 search for a new car. Instead, you probably identified a few very important criteria, such as gas mileage, color, “coolness,” and

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Section 8.4 Cognitive Biases

affordability, while ignoring other criteria which, to you, were less important. Using your lim- ited 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.

Variations of the bounded rationality model include intuitive decision making, naturalis- tic decision making, and affective decision making. Most decisions are not purely rational. Although they are not irrational, they can be based on subjective processes rather than con- scious systematic logic. Intuitive decision making depends on instincts or feelings. Similar to bounded rationality, it may be based on limited or flawed information or emotional biases. However, intuition is also an important foundation of creativity and innovation (Matzler, Bai- lom, & Mooradlan, 2007). Naturalistic decision making occurs in challenging jobs that involve high risks and undefined goals, such as firefighters, military commanders, and nurses, where relevant information may be limited or nonexistent and the situation continuously chang- ing. Thus, much of the decision making is based on the experience of the decision maker and adapted as the situation unfolds (Klein, 2016). Affective decision making places an equal weight on cognitive rational processes and affective or emotional processes in making deci- sions. Resultant subjective biases include the optimistic bias, in which the decision maker may anticipate the outcome of the decision to be more favorable than logically warranted. Optimistic bias can lead to risky decisions and behaviors due to underestimation of risks (Bracha & Brown, 2012).

Consider This: Rational Decision Making and Bounded Rationality

The following clip from the television show The Big Bang Theory offers a humorous depic- tion of a rational decision-making process for building a friendship. The decision maker gets “stuck” due to an implied display of bounded rationality and is helped by another perspective so that he can reach an acceptable satisficing solution.

The Friendship Algorithm

8.4 Cognitive Biases Although the vast majority of people apply bounded rationality to their decision-making pro- cesses, research suggests that people do have the tendency to acquire and process informa- tion 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 judg- ments. People form general rules of thumb, called heuristics, which help them reduce the complexities of information processing. Even though using heuristics, like other mental short- cuts, 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.

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Section 8.4 Cognitive Biases

Anchoring Bias The anchoring bias is the tendency for people to make judgments based on initial infor- mation 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 rea- sonable—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).

Confirmation Bias Confirmation bias suggests that people look for information that confirms or supports what they believe to be true and 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 who they know will support their beliefs, such as friends, family members, or coworkers. Finally, this bias leads people to assign greater impor- tance 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 “Knee- Deep 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 she 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. 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.

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Section 8.4 Cognitive Biases

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 have 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.

Consider This: Escalation of Commitment The following video shows irrational decisions made by participants in an auction of a $5 bill due to escalation of commitment.

Irrational Escalation of Commitment

Questions to Consider

1. Why do you think participants continued to bid higher, even when they were incurring a loss?

2. How would you have acted if you were part of this scenario? When would you have stopped bidding? Why?

Hindsight Bias Suppose 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 for people to believe that they could have predicted the correct outcome, after they know the actual outcome, is called hindsight bias (Fischhoff, 1975). Unfortunately, hindsight bias frequently Lindsay Foyle/CartoonStock

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Section 8.4 Cognitive Biases

makes people overconfident in their decision-making abilities, even in situations in which they do not have all the required 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% to 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 evalu- ate a situation adequately before making a decision. In fact, research shows that overcon- fidence 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 unavail- able, advice you received from others, the decision itself, and the consequences of the decision.

Questions to Consider

1. To what extent did your decision-making process resemble the rational decision-making model described in this chapter?

2. 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?

3. Which of the cognitive biases discussed in this chapter had an impact on your decision? 4. Would the consequences have been different if those cognitive biases were not present?

Conjunction Fallacy Consider the following scenario: Linda is 31 years old, single, outspoken, and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimina- tion and social justice and also participated in antinuclear demonstrations. Which is more probable?

a) Linda is a bank teller. b) Linda is a bank teller and is active in the feminist movement.

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Section 8.5 Improving Individual Decision Making

Interestingly, most people are likely to select the second choice, even though its probability is much lower because it involves two occurrences in conjunction. The probability of two events occurring in conjunction is always lower than the probability of one of them occurring alone. This cognitive bias, known as conjunction fallacy, is common because the more specific choice seems more representative of the scenario than the more general one. Researchers have found this type of bias to be prevalent in many areas, including politics and business. It is important for decision makers to avoid this type of bias by following sound logic and regu- larly examining their assumptions (Kahneman, 2013).

8.5 Improving Individual Decision Making Generally speaking, humans are not bad decision makers; however, we do often fall short of making fully rational decisions. As you have seen, our ability to make good choices is eas- ily influenced by emotions, intellectual limitations, external forces such as time and 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 edu- cation or obtaining feedback on their past decisions. Feedback provides a learning mecha- nism 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 com- mon 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 more effectively apply their newfound expertise and experience to 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 man- ager 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 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 leader- ship on a small scale with a few trusted associates 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 mak- ers 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. When they make successful decisions, decision makers can look for other situations in which the same strategy could be applied.

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Section 8.5 Improving Individual Decision Making

Debiasing Judgments Debiasing judgment is a process of eliminating cognitive biases from the decision-making 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 things individuals must receive in the debiasing process: (a) descriptions of the com- mon biases, (b) an explanation for the causes of the biases, and (c) assurance that biased decision making is common and can be overcome (Bazerman, 2002). 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.

Daniel Kahneman, winner of a Nobel Prize in Economics, found that humans are predictably irrational. In other words, while humans do not make rational decisions, their irrationality is systematic and follows logical patterns. These patterns are the foundation of behavioral economics, a method of economic analysis which has challenged many of the established eco- nomic theories that are based on rational decision making. The key to many of these theories is to become aware of and work with one’s biases, rather than deny that they exist or com- pletely give in to them (Kahneman, 2013).

Consider This: Why Do We Make Predictably Irrational Decisions?

In this entertaining video, Duke University professor Dan Ariely illustrates why people tend to make predictably irrational decisions.

We’re All Predictably Irrational

Questions to Consider

1. Did you find the illusions Ariely used to illustrate predictable irrationality surprising? Why or why not?

2. Can you think of a specific time when you made an irrational decision? What do you think influenced you to do so?

Taking an Outsider’s View When making a choice, a 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 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

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Section 8.6 Creative Decision Making

team leaders, however, feel confident they can complete the project 6 months ahead of sched- ule and 50% under the estimated budget; 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. Unfortu- nately, by focusing on the specific situation, insiders miss the opportunity to incorporate his- torical 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.

8.6 Creative Decision Making Organizations are constantly striving to discover, create, or produce the next big thing. This insatiable need for innovation has led many researchers and practitioners to think critically 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.

What Is Creativity? Simonton (2009) defines creativity as the generation of ideas that are both original and adaptive. Creativity occurs when a product, service, or procedure is proposed that is 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 helps solve a problem.


Being able to take an outsider’s view can be crucial to the decision-making process.

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Section 8.6 Creative Decision Making

Creativity is an important part of effectively solving problems and making decisions. Cre- ative thought expands the decision maker’s perspective and increases the number and type of alternatives available to solve a problem. Creativity drives the great ideas and innovations made by people across the world every day. Although creativity is often associated with revo- lutionary ideas, it also includes the ability to find novel approaches for incremental day-to- day problem solving (Simonton, 2004).

Creative Potential Are you creative? Many of us look at the spectacular creations of people like Albert Einstein, Steve Jobs, Pablo Picasso, Ama- deus Mozart, and William Shakespeare and immediately shake our heads, sigh, and say, “I am so not creative!” Don’t be discouraged! Research suggests that each of us, regard- less of our role, function, or level in an orga- nization, has potential for creativity—albeit some of us more than others (Oldham & Cummings, 1996).

Several personal traits have been discov- ered to increase a person’s potential for creativity. One study examined trait differ- ences between artists and nonartists and between scientists and nonscientists. It found that artists and scientists were sig- nificantly 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).

The 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, creative-thinking skills, and moti- vation. 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 recognize the relevance of information to new problems. Experts have the knowledge necessary to put the facts together.

Сергей Хакимуллин/iStock/Thinkstock

Creativity is important for solving problems and making decisions. It helps expand a decision maker’s perspective and increases the number of potential solutions he or she can generate.

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Section 8.6 Creative Decision Making

• Creative-thinking skills. Creative-thinking skills are demonstrated by how flexibly and imaginatively people approach problems. One creative-thinking skill involves using analogies. Creativity requires finding connections between diverse sources of information, and analogies encourage people to look at different situations in new ways so as to discover how they are related. Another creative thinking skill is con- ceptual expansion, which involves combining 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, they experience conceptual expansion. 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 its 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 that appealed to many different tastes—and used it to revolutionize the spaghetti sauce industry, making millions for Prego and resulting in a huge expansion of Americans’ 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 motiva- tion. 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 motiva- tion is essential for creativity because, without it, people would not be motivated to engage in or persist with a task, regardless of their expertise or skill in creative thinking (Amabile, 1996). Zhou and Ren (2012) refer to intrinsic factors that can enhance creativity in the workplace as the “task context.” These factors include job complexity, feedback, goals, creativity expectations, autonomy and discretion, time, and stress. Some extrinsic factors can also enhance creativity. These factors, which Zhou and Ren refer to as the “social context,” include leadership and supervision, coworker influences, social networks, cultural influences, adequate resources, and rewards and incentives. Amabile and Fisher (2009) recommend that organizations and leaders synergistically utilize intrinsic and extrinsic factors to promote and reward creative behaviors.

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 expres- sion. 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

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Section 8.7 Special Issues in Decision Making

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 trans- formational 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.

The physical work environment can also influence creativity. For example, office space with lower complexity, more plants, bright lighting, windows, attractive colors, and access to tech- nology has been rated higher on creative potential (Ceylan, Dul, & Aytac, 2008). However, when compared to other factors, a creative personality and a social environment that sup- ports creativity have been found to be more important than the physical environment in stim- ulating creativity (Dul, Ceylan, & Jaspers, 2011).

8.7 Special Issues in Decision Making The topics of ethics and emotions have garnered considerable attention among I/O psycholo- gists and behavioral scientists. Stories of corporate greed and scandal have fueled efforts to improve the ethics of decision making, while studies question the role of emotions in and their influence on effective decision making.

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 stan- dards 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 decision by keeping negative outcomes as low as possible while saving the company and keeping 90% of the workers employed during hard times. The utilitarian approach is very common in business because it supports logical business principles such as efficiency, profits, and productivity.

John Morris/CartoonStock

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Section 8.7 Special Issues in Decision Making

2. 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 in his or her organization) would be utilizing the rights approach if, for example, she reported systemic sexual harassment of subordinates by her company’s executives. 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.

3. 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 hetero- sexual 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.

4. 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—espe- cially those who are vulnerable or defenseless—are requirements for ethical behav- ior. 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.

5. 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 vir- tues 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 virtue approach to ethical decision making requires people to consider how decisions align with their virtues by asking themselves whether a decision will help them 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 on 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 dis- crimination, 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 imprac- tical because it fails to take into consideration the fact that budgets and resources are lim- ited. Finally, even though all decision makers can employ the virtue approach, not all have high standards of virtue.

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Section 8.8 Applying Positive Psychology to Creativity and Decision Making

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 objec- tively evaluate and interpret problems and alternatives. 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 (1994) studied patients with lesions in their 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 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 a regulating role. 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, emo- tions can be categorized as either positive or negative. Each has a different impact on deci- sion 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 creative 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 broaden-and- build model of positive emotions. According to this model, when we experience positive

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Section 8.8 Applying Positive Psychology to Creativity and Decision Making

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 on 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 posi- tivity—or more specifically, psychological capi- tal, 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, more attrac- tive 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 dif- ficulties, challenges, and problems at a later time, those inventories of resources come in handy. They can be drawn on when we experience negative emotions, and they act as a cush- ion against setbacks and adversities. If we do not experience positive emotions and accumu- late 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 nega- tive 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, then, can managers do to help their employees experience more positive emotions and fewer negative ones? There is a wide range of possibilities; offering intrinsically motivat- ing 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, and resilience) is coupled with positive feedback, the quantity and creativity of the solutions generated by employees can be enhanced (Luthans, Youssef, & Rawski, 2011).


People with positive emotions tend to make better decisions, since they are able to integrate information efficiently, adapt their problem-solving strategies, and generate more innovative ideas.

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Summary and Conclusion

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, abili- ties, experience, creativity, and expertise. They must also 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 per- sonal, social, and professional lives.

anchoring bias The tendency to make judg- ments based on initial information without utilizing new information to revise the origi- nal 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 mak- ing perfectly rational decisions.

broaden-and-build model of positive emotions The notion that positive emo- tions broaden our thought–action reper- toires 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 infor- mation that disproves or does not support it.

consensus The extent to which behavior is common across individuals.

consistency The 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 The generation of ideas that are both original and adaptive.

debiasing judgment A process of becom- ing aware of cognitive biases in order to eliminate them from the decision-making process.

distinctiveness The extent to which a 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.

Key Terms

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Summary and Conclusion

fundamental attribution error The ten- dency 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 pro- cessing 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 experi- ences with a target or series of targets.

rational decision-making model The process of identifying and selecting the outcome of maximum value to the organiza- tion through six steps: defining the problem, identifying the criteria for the solution, weighing the criteria, generating alterna- tives, rating alternatives according to the criteria, and computing the optimal decision.

recency effect The tendency to rely on information gathered from a person’s most recent experiences with a target or series of targets.

rights approach The notion that an ethi- cal 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 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 characteris- tics and to blame external factors for poor behaviors and failures.

stereotyping 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.

three-component model of creativity A model that proposes that creativity is the result of a person’s expertise, creative- thinking skills, and motivation.

utilitarian approach The notion that an ethical decision is one that provides the most amount of good while doing the least amount of harm.

virtue approach The notion that people’s actions ought to be consistent with certain ideal virtues that provide for the full devel- opment of humanity.

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© 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.

you83701_08_c08_231-256.indd 256 4/20/17 5:25 PM

© 2017 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution.