331 research outputs found

    Dual Market Facility Network Design under Bounded Rationality

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    A number of markets, geographically separated, with different demand characteristics for different products that share a common component, are analyzed. This common component can either be manufactured locally in each of the markets or transported between the markets to fulfill the demand. However, final assemblies are localized to the respective markets. The decision making challenge is whether to manufacture the common component centrally or locally. To formulate the underlying setting, a newsvendor modeling based approach is considered. The developed model is solved using Frank-Wolfe linearization technique along with Benders’ decomposition method. Further, the propensity of decision makers in each market to make suboptimal decisions leading to bounded rationality is considered. The results obtained for both the cases are compared

    Modeling customer bounded rationality in operations management: A review and research opportunities

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    Many studies in operations management started to explicitly model customer behavior. However, it is typically assumed that customers are fully rational decision-makers and maximize their utility perfectly. Recently, modeling customer bounded rationality has been gaining increasing attention and interest. This paper summarizes various approaches of modeling customer bounded rationality, surveys how they are applied to relevant operations management settings, and presents the new insights obtained. We also suggest future research opportunities in this important area

    The Expectation-Based Loss-Averse Newsvendor

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    We modify the classic single-period inventory management problem by assuming that the newsvendor is expectation-based loss averse according to Koszegi and Rabin (2006, 2007). Expectation-based loss aversion leads to an endogenous psychological cost of leftovers as well as stockouts. If there are no monetary stockout costs, then the loss-averse newsvendor orders a quantity lower than the quantity ordered by a profit-maximizing newsvendor. If there are positive monetary costs associated with stockouts, then the loss-averse newsvendor places suboptimal orders, which can be either too high or too low

    Performance Measurement for Inventory Models with Risk Preferences

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    In financial economics in general the objective function expresses the risk preferences of the decision maker, see for example the mean variance approach in portfolio theory. Only recently in inventory management instead of maximizing expected profit or minimizing expected cost risk-averse objective functions have been used for determining the optimal order quantity. Examples are the exponential utility function and the conditional value at risk criterion. We use the well-known newsvendor model to determine the optimal performance measures for an objective function with two risk parameters, which can describe risk neutral, risk averse as well as risk taking behaviour of the inventory manager. We provide for this approach a complete characterization with respect to the performance measures expected profit and service level. We show that a risk averse inventory manager can not dominate a risk neutral or a risk taking inventory manager. Finally, we provide a managerial guideline for selecting the appropriate risk parameters of the objective function.Performance Measurement, Risk Preferences, Newsvendor Model

    Managers and Students as Newsvendors - How Out-of-Task Experience Matters

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    We compare how freshmen business students, graduate business students and experienced procurement managers perform on a simple inventory ordering task. We find that, qualitatively, managers exhibit ordering behavior similar to students, including biased ordering towards average demand. Experience, however, affects subjects’ utilization of information. The managers’ work experience seems most valuable when there is only historical demand data to guide decision making, while students better utilize analytical information and task training. As a result, when information necessary to solve the problem to optimality is added to historical information, students catch up to the managers, and students with classroom experience in operations management outperform managers.

    Modeling Bounded Rationality in Capacity Allocation Games with the Quantal Response Equilibrium

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    We consider a supply chain with a single supplier and two retailers. The retailers choose their orders strategically, and if their orders exceed the supplier\u27s capacity, quantities are allocated proportionally to the orders. We experimentally study the capacity allocation game using subjects motivated by financial incentives. We find that the Nash equilibrium, which assumes that players are perfectly rational, substantially exaggerates retailers\u27 tendency to strategically order more than they need. We propose a model of bounded rationality based on the quantal response equilibrium, in which players are not perfect optimizers and they face uncertainty in their opponents\u27 actions. We structurally estimate model parameters using the maximum-likelihood method. Our results confirm that retailers exhibit bounded rationality, become more rational through repeated game play, but may not converge to perfect rationality as assumed by the Nash equilibrium. Finally, we consider several alternative behavioral theories and show that they do not explain our experimental data as well as our bounded rationality model

    An Experimental Comparison of News Vending and Price Gouging

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    The newsvendor problem is a workhorse model in operation management research. We introduce a related game that operates in the price dimension rather than the inventory dimension: the price gouging game. Using controlled laboratory experiments, we compare news vending and price gouging behavior. We replicate the standard pull-to-center effect for news vending and find that the equivalent pattern occurs with price gouging. Further, we find that the pull-to-center is asymmetric both for newsvendors and price gougers. More broadly, the experimental results reveal that choices are similar across the theoretically isomorphic games, suggesting that observed behavior in newsvendor experiments is representative of a broader class of games and not driven by the operations context that is often used in newsvendor experiments. Finally, we do not find evidence that behavior in these games is systemically affected by sex, risk attitude, or cognitive reflection

    Inventory record inaccuracy in supply chains: the role of workers’ behavior

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    Purpose This research aims at exploring the effect of inventory record inaccuracy due to behavioral aspects of workers on the order and inventory variance amplification. Design/methodology/approach We adopt a continuous-time analytical approach to describe the effect of inbound throughput on the inventory and order variance amplification due to the workload pressure and arousal of workers. The model is numerically solved through simulation and results are analyzed with statistical general linear model. Findings Inventory management policies that usually dampen variance amplification are not effective when inaccuracy is generated due to workers’ behavioral aspects. Specifically, the psychological sensitivity and stability of workers to deal with a given range of operational conditions have a combined and multiplying effect over the amplification of order and inventory variance generated by her/his errors. Research limitations/implications The main limitation of our research is that we model workers’ behavior by inheriting a well-known theory from psychology that assumes a U-shaped relationship between stress and errors. We do not validate this relationship in the specific context of inventory operations. Practical implications The paper gives suggestions for managers who are responsible for designing order and inventory policies on how to take into account workers’ behavioral reaction to work pressure. Originality/value The logistics management literature does not lack of research works on behavioral decision making causes of order and inventory variance amplification. Contrarily, this paper investigates a new kind of behavioral issue, namely the impact of psycho-behavioral aspects of workers on variance amplification

    Entrepreneurs and newsvendors : do small businesses follow the newsvendor logic when making inventory decisions?

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    This work empirically assesses the degree to which inventory decisions made by entrepreneurs and small businesses are informed by the logic underlying the newsvendor or base stock model and are influenced by the decision-maker’s risk profile. We used a web- and email-based survey, combined with a telephone follow-up to elicit risk profiles, obtaining 51 usable responses. Our findings suggest that entrepreneurs do follow the newsvendor logic, but more so for high-margin than for best-selling products. We find that entrepreneurs’ risk profiles are consistent with a key prediction from prospect theory, displaying risk aversion for profits and risk-seeking behavior for losses. Furthermore, we find that risk aversion for profits is associated with higher safety stocks, in contradiction to existing theory, and discuss several possible explanations for this finding
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