Impulse balance and framing effects in threshold public good games

In this paper, we revisit the evidence for framing effects in threshold public good games. Our particular focus is on why the probability of providing the public good appears to be higher in positive, give frames compared with negative, take frames. We show that the impulse balance theory can explain this effect. We also report a new experiment designed to test the predictions of the impulse balance theory. The results of the experiment fit well, both in quantitative and qualitative terms, with our predictions.</p

Behavioral Implications of Demand Perception in Inventory Management

The newsvendor problem is one of the rudimentary problems of inventory management with significant practical consequences, thus receiving considerable attention in the behavioral operational research literature. In this chapter, we focus on how decision makers perceive demand uncertainty in the newsvendor setting and discuss how such perception patterns influence commonly observed phenomena in order decisions, such as the pull-to-center effect. Drawing from behavioral biases such as over precision, we propose that decision makers tend to perceive demand to be smaller than it actually is in high margin contexts, and this effect becomes more pronounced with increases in demand size. The opposite pattern is observed in low margin settings; decision makers perceive demand to be larger than the true demand, and this tendency is stronger at lower mean demand levels. Concurrently, decision makers tend to perceive demand to be less variable than it actually is, and this tendency propagates as the variability of demand increases in low margin contexts and decreases in high margin contexts. These perceptions, in turn, lead to more skewed decisions at both ends of the demand spectrum. We discuss how decision makers can be made aware of these biases and how decision processes can be re-designed to convert these unconscious competencies into capabilities to improve decision making

オムニチャネル小売業におけるファッション商品の品切れに対する対応のモデル化分析

筑波大学 (University of Tsukuba)201

Demand Estimation at Manufacturer-Retailer Duo: A Macro-Micro Approach

This dissertation is divided into two phases. The main objective of this phase is to use Bayesian MCMC technique, to attain (1) estimates, (2) predictions and (3) posterior probability of sales greater than certain amount for sampled regions and any random region selected from the population or sample. These regions are served by a single product manufacturer who is considered to be similar to newsvendor. The optimal estimates, predictions and posterior probabilities are obtained in presence of advertising expenditure set by the manufacturer, past historical sales data that contains both censored and exact observations and finally stochastic regional effects that cannot be quantified but are believed to strongly influence future demand. Knowledge of these optimal values is useful in eliminating stock-out and excess inventory holding situations while increasing the profitability across the entire supply chain. Subsequently, the second phase, examines the impact of Cournot and Stackelberg games in a supply-chain on shelf space allocation and pricing decisions. In particular, we consider two scenarios: (1) two manufacturers competing for shelf space allocation at a single retailer, and (2) two manufacturers competing for shelf space allocation at two competing retailers, whose pricing decisions influence their demand which in turn influences their shelf-space allocation. We obtain the optimal pricing and shelf-space allocation in these two scenarios by optimizing the profit functions for each of the players in the game. Our numerical results indicate that (1) Cournot games to be the most profitable along the whole supply chain whereas Stackelberg games and mixed games turn out to be least profitable, and (2) higher the shelf space elasticity, lower the wholesale price of the product; conversely, lower the retail price of the product, greater the shelf space allocated for that product

THREE ESSAYS ON OFFSHORING DECISION-MAKING

This thesis studies biases in offshoring decisions and proposes a tool to improve understanding of the value of lead-time. Recent research results show local responsive production reduces mismatch between supply and demand, but this aspect of the cost is often overlooked in offshoring decisions, leading to suboptimal decisions. The tradeoff between lower unit costs and mismatch cost under demand uncertainty as lead-time increases, and the benefits of a local portfolio of products with different demand volatility, make the offshoring decision complex and the optimal solution sometimes counterintuitive. Building on behavioral research, I designed software-based laboratory trials to explore patterns of decisions in an offshoring problem, and a simulation-game to help teach and communicate research insights. In the first paper, I find that participants facing an offshoring problem fail to apply the economically optimal strategy. In the second paper, I find that non-economic factors like peer influence play a role in offshoring decisions. These trials are exploratory in nature and do not provide generalizable results, rather, they are a step towards a better understanding of the fundamental research questions and the conception of experiments. In the third paper, I describe the development and use of a simulation-game to help students, managers and policy makers understand the value of lead-time and volatility portfolio through an active learning approach. My work contributes to the understanding of the impact of bounded rationality in offshoring decisions and proposes a teaching method adapted to the challenges posed by the concepts involved

Economic Order Quantity (EOQ) Inventory Management - Essays in Experimental Economics

This thesis consists of six chapters to experimentally study aspects of how levels of individuals’ cognitive stress, cognitive ability and self-regulatory resource affect their decision making under the Economics Order Quantity (EOQ) inventory management environment. In Chapter 3 we use laboratory experiments to evaluate the effects of cognitive stress on inventory management decisions in a finite horizon economic order quantity model. We manipulate two sources of cognitive stress. First, we vary participants’ participation in a pin memorisation task. This exogenously increases cognitive load. Second, we introduce an intervention to reduce cognitive stress by only allowing participants to order when inventory is depleted. This intervention restricts the policy choice set. Increases in cognitive load negatively impact earnings with and without the intervention, with these impacts occurring in the first year. Participants’ in all treatments tend to adopt near optimal policies. However, only in the intervention and low cognitive load treatment do the majority of choices reach the optimal policy. Our results suggest that higher levels of multitasking lead to lower initial performance when taking on new product lines, and that the benefits of providing support and task simplicity are greatest when the task is first assigned. In Chapter 4 we use laboratory experiments to evaluate the effects of individuals’ cognitive abilities on their behaviour in a finite horizon economic order quantity model. Participants’ abilities to balance intuitive judgement with cognitive deliberations are measured by the Cognitive Reflection Test (CRT). Participants then complete a sequence of five “annual” inventory management tasks with monthly ordering decisions. Our results show that participants with higher CRT scores on average earn greater profit and choose more effective inventory management policies. However these gaps are transitory as participants with lower CRT scores exhibit faster learning. We also find a significant gender effect on CRT scores. This suggests hiring practices incorporating CRT type of instruments can lead to an unjustified bias. In Chapter 5 we use laboratory experiments to evaluate the effects of individuals’ ability to self- regulate on inventory management decisions in a finite horizon economic order quantity model. An ego depletion task is implemented aiming to diminish one’s self-regulatory resources. From a psychological point of view, self-control is impaired when the mental resource has been used up over effortful control of responses. In our experiment, participants complete an ego depletion task followed by a sequence of five “annual” inventory management tasks with monthly ordering decisions. Our results show there is no obvious treatment effect on participants’ self-regulation ability

Engineering Better Decision Making. Improving Decisions Through Behavioral Economic Engineering

Die vorliegende Arbeit befasst sich im Rahmen des Behavioral Operations Management mit der begrenzten Rationalität und den kognitiven Verzerrungen menschlicher Entscheider. In der Arbeit wird mittels experimenteller Studien untersucht, wie man menschliches Verhalten auf vorhersagbare Weise in eine "optimale" Richtung beeinflussen kann. Die Arbeit liefert dabei Antworten auf die Fragen, auf Basis welcher Kennzahlen Menschen klügere Entscheidungen treffen, wie Menschen auf bestimmte Lieferverträge reagieren oder wie man effektiv Prognosen kommuniziert

Exploring the contribution of individual differences and planning policy parameters to demand planning performance.

Demand planning (DP) is important for business performance. DP depends both on managers and on supporting systems. Managers are known to increase uncertainty by systematically overriding the systems and making unnecessary judgemental adjustments. This is a behavioural problem. Systems are assumed to be represented by different policies and individual differences by measurable traits and characteristics. The contribution of individual differences and policy parameters to DP performance is not clear. A framework is proposed based on the cumulative prospect theory (CPT) and myopic loss aversion (MLA). Methodology of decision making experiment based on the newsvendor is used. Individual differences are collected using previously validated psychometric scales and demographic questions. The sample (N=339) includes three main groups: professional planners (N=84), naïve students (N=166), logistics and supply chain management (L&SCM) students (N=56). The MLA hypothesis is supported. Longer planning horizons (less frequent decisions) outperforms short planning horizons. Regarding individual differences, only experience/knowledge and naïve interventionism are significant predictors of DP performance. L&SCM students with theoretical knowledge but without practical experience perform the best. No significant difference in performance is found between professional planners and naïve students. Naïve interventionism (plan instability) contributes negatively to DP performance. Personality (Big Five), impulsiveness, propensity to plan, decision-making style or demographics (e.g. age, sex, and years of experience or managerial level) are not significant for DP performance. The view that there is a ‘right’ mind-set (personality) to be a good planner is challenged. DP policy can offset individual differences. A MLA informed policy can reduce uncertainty introduced by behaviour. System restrictiveness (binding policy for long commitment) outperforms decisional guidance (non-binding policy for optional commitment). This is one of the first applications of CPT and MLA to DP decisions