Perceptual errors, attributions and biases in managerial decision making

MANAGING
ORGANISATIONAL
CHANGE
Perceptual errors, attributions and biases are important in managerial decisions

1
In the modern day business, effective decision making is highly required in the firm. This is
due to the reason that there are many decisions that are of strategic importance. If such
decisions are not taken in a proper manner then firm can face lose to their competitors
(Johnson, Blumstein, Fowler & Haselton, 2013). There are various factors that influence the
managerial decision making and any firm needs to control these factors so as to make a better
decision. Environment and the internal factors including the approach of leader and managers
play a very vital role in the decision making of an organisation. As an organisation it is
crucial that they dilute the influencing factors so that any decision must not be taken under
pressure (Zhang & Bazerman, 2011). Among the various factors that influences decision
making, some of them are related with the leadership and management inside the firm. Some
of these factors are described below.
First factor that influences managerial decision making is perceptual errors. This factor is
crucial as well as dangerous for the managerial decisions. Perceptual error is generally
considered as not seeing what reality is or in other words it is understood to be illusion that is
considered as reality (Reiman & Rollenhagen, 2011). Perceptual errors can be distributed into
several type namely stereotyping, horn effect, halo effect, primary effect, recency effect. All
these factors need to be properly taken care of so as to assure that the taken decisions are in
favour of the organisation. This can be understood by the fact that if the managers have any
kind of perception regarding anything they cannot make effective decisions. It becomes
important as the people who are responsible for making of the decisions must not be in state
of illusions. Any decisions that are based on the stereotyping or horn effect may not be
effective or may lack consistency. They are important because illusions make the managerial
decisions to be unreliable (Frese & Keith, 2015). This can be understood by the example that
making positive or negative generalisation regarding any particular category of people can
make the managerial decisions to be inaccurate. Since most of the perceptual errors are based
on beliefs hence it may result in decisions that are not very appropriate. For example if the
management tries to promote a person who is actually not very capable and he is promoted
because managers think it to be so. In such case it can be dangerous for the environment as
well as the operational efficiency of the firm as wrong person can get some important
responsibility.
Perceptual errors make decisions more incompetent and more unreasonable (Talke &
Heidenreich, 2014). It also lays down the morale of the people who did not get promoted
even after doing hard work. The recency effect is another crucial perceptual error that is made

2
by the organisations. Most recent information often influences the judgement even when
there is whole lot of information available at the time of decisions. This effect is more
dangerous in case when the other information suggests in other ways. In other case trusting
on the first information that is received by management rather than believing on the
information that is received after the first one can be dangerous. This primary information
based decision may not be very effective for the organisation. Another crucial aspect of the
managerial decision making is similar to me effect (Martinko, Harvey & Dasborough, 2011).
It is seen that favourable judgement in favour of those who are similar to managers. This
demotivates other employees who are at the same or other level of the organisational
structure. This gets dangerous in the case when the managers underestimate the influence of
external factors while making of the decisions. Overestimation of the influence of internal
factors especially when there was judgement about the other’s behaviour can also decrease
the quality of the made decisions.
Along with this many a time it is seen that managers do not take ownership of their decisions
and puts the blame on external factors if anything goes wrong. If the decision is not made
taking ownership there is always a chance that made decisions are not very sound.
Overburdened under their own belief or expectations always reduces the measurability of the
decisions (Blume & Covin, 2011). This also favours decisions that are unachievable.
Perceptual errors limit the accuracy in measuring the solution. The solutions obtained can be
vague and can be non-meaningful for the organisation. This also limits the power of the firm
to understand the problems that they are facing.
Second factor that is influencing managerial decisions is attributions. This also plays a
decisive role at least at the top level of the management. This is because if the people sitting
at the top of the organisational level have certain kinds of attributes then there is always a
chance that governance and management of the organisation can be done in a better way.
This is due to the fact that there are several qualities that must be present with any leader for
making effective decisions (Siegrist & Sütterlin, 2014). Since it is the role of leaders at the
top to make decisions that are of strategic importance hence significant influence of
attribution can be seen. It is important that an organisation has leaders at the top management
level who are capable of making important decisions with the qualities they have. Most of the
time attributions play a much greater role in the process of bringing companies out of the
problems that they are facing. With the attributes that any organisation’s leaders have they
can make the decision making process smoother and reliable. A highly attributed leader at the