We turn here to factors that influence the way people make decisions and the degree to which they are susceptible to errors and biases. We discuss individual differences and then organizational constraints. As we discussed, decision making in practice is characterized by bounded rationality, common biases and errors, and the use of intuition. Individual differences such as personality also influences our decisions.

People with high self-esteem (a general perception of being good enough) are strongly motivated to maintain it, so they use the self-serving bias to preserve it. They blame others for their failures while taking credit for successes. We know people with higher levels of mental ability can process information more quickly, solve problems more accurately, and learn faster, so you might expect them to be less susceptible to common decision errors. Cultures differ in time orientation, the value they place on rationality, their belief in the ability of people to solve problems, and their preference for collective decision making.

While rationality is valued in North America, that’s not true elsewhere. Some cultures emphasize solving problems, while others focus on accepting situations as they are. Organizations and precedents can constrain decision makers, creating deviations from the rational model. Managers are also influenced by the criteria on which they are evaluated. The organization’s reward systems influence decision makers by suggesting which choices have better personal payoffs. If the organization rewards risk aversion, managers are more likely to make conservative decisions.

Decisions aren’t made in a vacuum; they have context. Individual decisions are points in a stream of choices; those made in the past constrain current choices. Choices made today are largely a result of choices made over the years.