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  • Decision Bias in The Newsvendor Problem

    Hochgeladen von

    Jasmina Tacheva
    71 Ansichten23 Seiten
    This document summarizes research on decision bias in the newsvendor problem. The newsvendor problem involves ordering a quantity of inventory with uncertain demand. Prior research found managers' orders do not maximize expected profits. This study tests whether orders align with descriptive models of decision making like risk aversion, anchoring and adjustment, or preference for minimizing inventory errors. The researchers conducted two experiments with MBA students making inventory decisions under different demand distributions. In Experiment 1 with uniform demand, orders were below the profit-maximizing level, consistent with anchoring on the mean demand and insufficient adjustment. Experiment 2 varied the demand distribution and found orders still diverged from optimal levels, supporting descriptive models of decision biases over pure profit maximization

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    Decision Bias in the Newsvendor Problem

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    Decision Bias in the Newsvendor Problem

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    This document summarizes research on decision bias in the newsvendor problem. The newsvendor problem involves ordering a quantity of inventory with uncertain demand. Prior research found managers' orders do not maximize expected profits. This study tests whether orders align with descriptive models of decision making like risk aversion, anchoring and adjustment, or preference for minimizing inventory errors. The researchers conducted two experiments with MBA students making inventory decisions under different demand distributions. In Experiment 1 with uniform demand, orders were below the profit-maximizing level, consistent with anchoring on the mean demand and insufficient adjustment. Experiment 2 varied the demand distribution and found orders still diverged from optimal levels, supporting descriptive models of decision biases over pure profit maximization

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    © All Rights Reserved
    Als PPTX, PDF, TXT herunterladen oder online auf Scribd lesen
    Markieren Sie unangemessene Inhalte
    71 Ansichten23 Seiten

    Decision Bias in The Newsvendor Problem

    Hochgeladen von

    Jasmina Tacheva
    This document summarizes research on decision bias in the newsvendor problem. The newsvendor problem involves ordering a quantity of inventory with uncertain demand. Prior research found managers' orders do not maximize expected profits. This study tests whether orders align with descriptive models of decision making like risk aversion, anchoring and adjustment, or preference for minimizing inventory errors. The researchers conducted two experiments with MBA students making inventory decisions under different demand distributions. In Experiment 1 with uniform demand, orders were below the profit-maximizing level, consistent with anchoring on the mean demand and insufficient adjustment. Experiment 2 varied the demand distribution and found orders still diverged from optimal levels, supporting descriptive models of decision biases over pure profit maximization

    Copyright:

    © All Rights Reserved
    Als PPTX, PDF, TXT herunterladen oder online auf Scribd lesen
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    von 23

    Decision Bias in the

    Newsvendor Problem
    with a Known Demand
    Distribution:
    Experimental Evidence
    Schweitzer and Cachon, 2000

    Introduction
    Newsvendor problem: short selling
    season with stochastic demand,
    one order opportunity, balance
    between underage & overage
    costs.
    Problem is well-known, but there is
    little engagement with how
    managers make decisions.
    Order Q ex-ante is rarely the best

    Introduction
    Managers decisions dont
    correspond to expected profitmaximizing order Q (Fisher and
    Raman 1996), but no explanation
    provided.
    Anchoring and insufficient
    adjustment bias (Sterman 1989).
    Influence of Supply chain design
    (Croson and Donohue 1998).

    Introduction
    Preferences other than profit
    maximization risk-averse
    behavior (Eechhouldt et al. 1995).
    Inventory level heuristic.
    Biased forecast done away with
    in this paper.

    Descriptive Models

    Inefficient order Q not consistent with:


    Risk aversion
    Risk-seeking preferences
    Prospect theory preferences
    Loss aversion
    Stockout aversion.
    Undervaluing opportunity costs
    Consistent with:
    Preference to reduce ex-post inventory error
    Anchoring and insufficient adjustment.

    The Newsvendor Problem


    q, D, , F, f, c, p, s.

    High- and low-profit products:

    Utility Maximizing Orders

    Risk Neutral Preferences


    un(w) = w -> max un(w) = max
    E[(q,D)]
    qn is the optimal risk-neutral order Q

    Risk-averse and Riskseeking Preferences

    Prospect Theory
    Preferences
    Risk-averse over domain of gains
    and risk-seeking over domain of
    losses (Kahneman and Tversky
    1979);
    reference point = current wealth.
    with all gains = less than qn.
    with all losses = more than qn.
    with both = depends.

    Loss-averse Preferences

    q1<qn

    q1/<0

    Waste-Averse Preferences

    qt<qn

    Stockout-Averse
    Preferences

    qm>qn

    Underestimating
    Opportunity Costs

    qo<qn

    Preference for Minimizing


    Ex-Post Inventory Level

    Anchoring and Insufficient


    Adjustment
    mean anchor heuristic on mean
    demand, adjusting towards qn.
    chasing demand on prior order Q,
    adjusting towards prior D.

    Experiment 1: Uniform
    Demand
    34 MBA students
    selling wodgets
    not informed about total # of
    rounds, or future price and cost.
    30 inventory decisions
    critical fractiles: 25 and 75%-> 75
    and 225 qn.

    Experiment 1

    Experiment 1

    Experiment 1: Procedure
    Initial inventory decisions
    unconfounded
    Average high-profit order Q =
    176.68<225;
    Average low-profit order Q =
    134.06>75.
    Double repeated measures
    generalized linear model.
    Mean and chasing demand

    Adjustment Scores
    mean anchor heuristic:

    chasing demand heuristic:

    Experiment 2: High
    Demand Distribution
    44 2nd year MBA students
    losses are not possible <increased D range: low [1,300] and
    high [901,1200]
    qn low: 225 or 75
    qn high: 1125 or 975

    Results
    High-D: 186.88 or 1092.55
    Low-D: 142.17 or 1021.81

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