Doctoral thesis

Essays on biased newsvendor ordering behavior based on laboratory experiments


103 p

Thèse de doctorat: Università della Svizzera italiana, 2013

English A behavioral approach studying inventory ordering decisions in Newsvendor settings dates back to the early 2000s. Two systematic biased behavioral patterns have been identified since: a pull-to-center effect, or the tendency to order too many costly (low-safety stock) products and too few cheap (highsafety stock) products relative to the optimal stock level; and a demand chasing bias, or the tendency to adjust inventory ordering quantities towards prior demand realizations. Through three essays, this dissertation extends behavioral research in Newsvendor settings by exploring decision making behavior in structurally similar decisions and testing two different debiasing strategies. Essay 1 develops the Innovator model, an analog to the Newsvendor model for New Product Development projects, and explores project complexity level and resource allocation decision biases. This study finds that project complexity level and resource allocation decision biases resemble Newsvendor biases. Essay 2 proposes a debiasing mechanism that builds on cognitive dissonance theory to stress differences in items’ importance and safety stock levels in joint decisions as a way to debias Newsvendor ordering decisions for critical items. This study finds that joint consonant decision frameworks reduce to some extent biased Newsvendor ordering behavior, whereas joint dissonant decision frameworks increase it. Finally, essay 3 tests a Newsvendor extension that backlogs unmet demand and compares it to the traditional Newsvendor model that loses unmet demand. This study finds that backorders help achieving better inventory ordering decision making in terms of both profits and product availability relative to lost sales.
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