Indviduals behave in a given manner based not on the way their external environment actually, is but, rather, on what they see or believe it to be. Perception can be defined as s a process by which individuals organize and interpret their sensory impressions in order to give meaning to their environment. Since people's behavior is based on their perception of what reality is, not on reality itself. Three factors that shape perception of an individual are perceiver, target and situation. An important element in perception is attribution process. Attribution theory (Kelley, 1972) suggests that when we observe an individual's behavior, we attempt to determine whether it was internally or externally caused. Internally caused behaviors are those that are believed to be under the personal control of the individual. Externally caused behavior is seen as resulting from outside causes; that is, the person is seen as having been forced into the behavior by the situation.
Research evidence shows that individuals have a tendency to underestimate the influence of external factors and overestimate the influence of internal or personal factors. There is also a tendency for individuals to attribute their own successes to internal factors, such as, ability or effort while putting the blame for failure on external factors, such as, luck. This is called the “self-serving bias” and suggests that feedback provided to employees will be distorted by recipients. Individuals have a tendency to use a number of shortcuts when they judge others. An understanding of these shortcuts can be helpful toward recognizing when they can result in significant distortions. Any characteristic that makes a person, object, or event stand out will increase the probability that it will be perceived. It is impossible for an individual to internalize and assimilate everything that is seen .Only certain stimuli can be taken in selectively. The halo effect (Murphy & Anhalt, 1992) occurs when we draw a general impression on the basis of a single characteristic. Individuals do not evaluate a person in isolation. Their reaction to one person is influenced by other persons they have encountered recently. This tendency to attribute one's own characteristics to other people–which is called projection–can distort perceptions made about others. When managers engage in projection, they compromise their ability to respond to individual differences. They tend to see people as more homogeneous than they really are. Stereotyping is the process of judging someone on the basis of our perception of the group to which he or she belongs. Generalization is not without advantages (Hilton & Hippel, 1996).
Decision-making occurs as a reaction to a problem. Problem is defined as a discrepancy between some current state of affairs and some desired state, needing attention for alternative courses of action. The awareness that a problem exists and that a decision needs to be made is a perceptual issue. Every decision requires interpretation and evaluation of information. The optimizing decision maker is rational. He or she makes consistent, value-maximizing choices within specified constraints. This also includes the resource crunch and other limitations as well. Most decisions in the real world do not follow the rational model.
Decision-makers generally make limited use of their creativity. Choices tend to be confined to the neighborhood of the problem symptom and to the neighborhood of the current alternative. When faced with a complex problem, most people respond by reducing the problem to a level at which it can be readily understood, due to limited information-processing capability. As a result, people seek solutions that are satisfactory and sufficient. This is called bounded rationality (Simon, 1947). Individuals operate within the confines of bounded rationality. They construct simplified models that extract the essential features.