People in organizations may see things differently, because they make perceptual errors. Perceptual errors are flaws in perception due to mental shortcuts that people make to simplify information that is processed. There errors have several implications on the workplace. They effect interpretations of the behavior of leaders and coworkers, they effect how job applicants are seen in interviews and they effect performance appraisals. Therefore, leaders need to be aware of these perceptual biases and guard against them.

What are the most studied biases in workplace studies?

The most studied biases in workplace settings can be remembered by the acronym PRACH, which stands for primacy, recency, availability, contrast and halo. Each of these will be discusses briefly below.

The primacy effect or belief perseverance refers to the first impression. It refers to the well-known statement "you never get a second chance to make a first impression". Indeed, first impressions do matter. They matter a lot. Stereotypes play an important role in these first impressions one has about for instance a job applicant. What can be done to address the primacy effect? Research has demonstrated that when people are asked to justify their decisions to others, they are more likely to process all the information that is available to them. Thus, accountability influences a person's vigilance and improves processing of all the information that is presented. Second, the leader should be willing to hit the reset button and look at a situation as if they had no prior exposure to it. 

Not only do people remember what they experience first, they also remember the most recently presented items or experiences. This is referred to as the recency effect. For instance, if you hear a long list of names, you probably forget the ones in the middle, but you will remember those at the end. In a job interview for example, it is important to end on a positive note by showing the interviewer appreciation for their time. People can however improve their short-term memory by employing control processes that affect how information is stored and retrieved. Two of those techniques are rehearsal (repetition of information) and imaging (linking verbal information to visual images).

Availability bias is a form of bias in which a person's judgement is based upon what most readily comes into a person's mind. For example, when a person hears a list of names with 19 famous women and 20 less famous men, this person will probably say that there are more women on the list. In addition to information that is readily available, information that is more complex has a higher chance of being forgotten. Therefore, both the ease and difficulty of recall effects how well people remember information. How can a leader guard against making this availability bias mistake? First, he or she can make the things that are desired for decision making vivid and very easy to bring to mind, for example with repetition and visualization. Elaborative interrogation increases the willingness to let go of preconceived notions and learn material that challenges belief. This requires people to generate their own explanations of factual statements that are presented to them. 

Contrast effects refers to a shortcut when we make comparisons based upon what has happened just before we make a decision or judgment. For example, when a leader has followers who are poor performers, the leader tends to give very high ratings to average-performing subordinates. Contrast effects may also happen during the interviewing process. An application may be rated more favorably if he or she follows a sequence of poor applicants, even though they may not be the best person for the job. To eliminate these contrast effects, leaders should be more aware of the potential risk. In addition, a structured interview may help. A structured interview uses standard and numerical score sheets, uses behavioral and situational questions, asks the same questions in the same order for each applicant, and avoids questions that are unrelated to the position one is interviewing for. 

Halo error (the opposite is called horns error) occurs when the rater's overall positive (or negative in case or horns error) impression or evaluation strongly influences ratings of specific attributes. For instance, wearing a fraternity pin to an interview may invoke a positive impression if the interviewer is a person who assumes membership in the organization translates to high performance. Halo error results in an overall positive impression of a follower that clouds evaluation of actual performance, because it is assumed that if a follower is good at one aspect of the job, he or she is good at everything.  

How do self-fulfilling prophecies influence the application process?

Employability refers to an attribution employers make about the probability that job candidates will make positive contributions to their organizations. What determines employability? Three determinants have been identified:

• Social, interpersonal compatibility: rewarding to deal with.
• Abilities, expertise, know how: able to do the job.
• Ambition, work ethic, drive: willing to work hard.

Which four roles do managers have in decision making?

According to Mintzberg, managers have four decisional roles:

1. Entrepreneur: looking for new ideas and opportunities.
2. Disturbance handler: resolving conflicts and choosing strategic alternatives.
3. Resource allocator: deciding how to prioritize the direction of resources.
4. Negotiator: protecting the interests of the business by interacting within teams, departments, and the organizations.

Some people, however, seem to be unable to make any decision. Why are some people more indecisive than others? It appears that personality traits play a role here. Less emotionally stable leaders who fear upsetting others allow debates to drag on for too long. As a result, they may make decisions that are not optimal. Indecisiveness may also affect students who are about to decide which job offer they take. Career indecision refers to the difficulties preventing individuals from making a career decision.

How to make decisions according to the rational decision-making model?

The decision-making model presents a series of logical steps one can follow to determine the optimal choice. The six steps of this model are:

1. Problem or opportunity identification
2. Information search and analysis
3. Generate alternatives
4. Evaluate alternatives
5. Make decision
6. Develop action plans

Sometimes, managers fail to identify the problem correctly. Also, some managers only consider a few alternatives rather than a broad set of possible options. Sometimes, managers suboptimize rather than choosing an optimal alternative. Finally, decisions are sometimes made without complete information due to lack of availability of information that is relevant to the problem or due to time pressure. Frequently, people satisfice, they make a decision that is satisfactory but perhaps not optimal. 

What is the prospect theory?

Suppose the following two scenarios:

1. You have €1000,- and you must pick one of the following choices:
   
   1. You have a 50% chance of gaining €1000,- and a 50% chance of gaining €0,-
   2. You have a 100% chance of gaining €500,-
2. You have €2000,- and you must pick one of the following choices:
   
   1. You have a 50% chance of losing €1000,- and a 50% chance of losing €0,-
   2. You have a 100% chance of losing €500,-

The majority of people chose B for question 1 and A for question 2. However, if people made decisions according to rational decision-making norms, they would pick either A or B in both situations. They should be indifferent because the expected value of both outcomes is the same. Why do most people decide differently? Well, it appears that people are willing to settle for a reasonable gain even if they have a reasonable chance of earning more, but they are willing to engage in risk-seeking behaviors when they can limit their losses. To put it differently, losses weigh more heavily emotionally in decision making than an equivalent gain. 

Prospect theory explains why decisions are sometimes irrational. People tend to put more emphasis on gains instead of losses; they make decisions that increase their gains and avoid loss. According to the prospect theory, people treat the two types of risk (gain versus loss) differently to maximize their perceived outcome. This, however, may result in irrational decisions that are not based on a correct calculation of expected utility.

As such, framing is of great importance. Framing refers to whether questions are presented as gains or losses. 

How does intuition influence decision making?

Leaders often rely on their gut feeling (intuition) when making important decisions. Although intuition in decision making has a bad reputation, most managers acknowledge that it plays a role in their decisions. It may lead to wicked organizational problems, known by the following characteristics:

• There are no clear boundaries, many actors, and high connections to other problems.
• They require holistic strategies, piecemeal solutions do not work.
• They have nonlinear cause-effect relationships that are difficult to determine.
• They lack finality of resolution.
• Patterns continually emerge, so predictability is impossible.
• They lack ultimately right answers, situational factors mean every solution is temporary. 

These problems are wicked because they are complex, dynamic, and constrained, so there are limits to whether analysis or heuristics can be applied.

What are the three major decision traps?

1. Hindsight bias, also known as "I knew it all along effect": the tendency for individuals with outcome knowledge (hindsight) to claim they would have estimated a probability of occurrence for the reported outcome that is higher than they would have estimated in foresight (without the outcome information).
2. Overconfidence bias (hubris): inflated confidence in how accurate a person's knowledge or estimates are.
3. Escalation of commitment: when individuals continue a failing course of action after receiving feedback that shows it is not working. Continuing commitment, because a person is already invested in this course. 

What is creative problem solving?

A famous quote by Albert Einstein on creativity is the following: "Imagination is more important than knowledge. For knowledge is limited to all we now know and understand, while imagination embraces the entire world, and all there ever will be to know and understand." 

Creativity is defined as follows: discovery consists of seeing what everybody has seen and thinking what nobody has thought. Creativity refers to the tendency to generate or recognize ideas, alternatives, or possibilities that may be useful in solving problems, communicating with others, and entertaining ourselves and others. 

The three components of the model of creativity are: expertise; creativity skills, and; task motivation. Given that the person has the expertise (knowledge: technical, processes, and academic) related to the problem, their creative thinking skills can be enhanced through training. Moreover, leaders can enhance the right processes and workplace climates to enhance creativity. 

What are the implications for leaders?

This chapter showed how perceptions can be flawed and impact the quality of a leader's decision. Leaders should follow three fundamental ethical guidelines. First, utilitarianism refers to the consideration of decisions that do most good for the most people (the end justifies the means). Second, individual rights protect individuals, such as the right to appeal a decision that affects them. Third, justice emphasizes social justice. Decision makers are guided by equity, fairness and impartiality.