Addressing the sample size problem in behavioural operational research: simulating the newsvendor problem

Laboratory-based experimental studies with human participants are beneficial for testing hypotheses in behavioural operational research. However, such experiments are not without their problems. One specific problem is obtaining a sufficient sample size, not only in terms of the number of participants but also the time they are willing to devote to an experiment. In this paper, we explore how agent-based simulation (ABS) can be used to address the sample size problem and demonstrate the approach in the newsvendor setting. The decision-making strategies of a small sample of individual decision-makers are determined through laboratory experiments. The interactions of these suppliers and retailers are then simulated using an ABS to generate a large sample set of decisions. With only a small number of participants, we demonstrate that it is possible to produce similar results to previous experimental studies that involved much larger sample sizes. We conclude that ABS provides the potential to extend the scope of experimental research in behavioural operational research

The impact of human decision makers' individualities on the wholesale price contract's efficiency : simulating the newsvendor problem

Suppliers and retailers in the newsvendor setting need to submit their pricing and inventory decisions respectively, well before actual customer demand is realized. In the literature they have both been typically considered as perfectly rational optimizers, exclusively interested in their own respective benefits. Under the above set of conditions the wholesale price-only contract has long been analytically proven as inefficient. We asked real human subjects to act as suppliers or retailers in simulation games performed in the laboratory. We found their decisions to significantly deviate from the perfectly rational decisions. By using Agent Based Simulation as the evaluation tool, we investigated the effect of their varying individual preferences on the contract's efficiency. In doing so we established sufficient evidence that the contract can emerge as efficient, in spite of the underlying strategies' under-performances. This counter-intuitive result fully supports the contract's long observed wide popularity