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Impact of decision style on newsvendor ordering behaviors: mean anchoring, demand chasing and overconfidence

  • Xiaohua Han
  • Yiwen Bian
  • Jennifer Shang
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Abstract

Prior experimental studies have shown that individuals’ actual ordering decisions significantly deviate from theoretically-proved optimums in newsvendor problems. Several ordering behaviors like mean anchoring, demand chasing, reference dependence, mental accounting and overconfidence have been demonstrated to be the main causes for such deviations. However, less attention has been focused on the impact of decision style on ordering behaviors. To address such challenging issue, we conduct a between-subjects experiment and compare decision results between different groups of individuals, who are characterized by their decision styles, i.e., rational style and experiential style, as well as their tendencies to the three typical behaviors, i.e., mean anchoring, demand chasing and overconfidence. We show that individuals with high rational style or low experiential style can make better inventory order decisions. Furthermore, decision style and profit margin conditions are demonstrated to actually affect individuals’ tendencies to mean anchoring, demand chasing and overconfidence, which subsequently affects their order decisions. More importantly, compared to mean anchoring and demand chasing, overconfidence is identified as a dominated factor in affecting the order decisions. This research sheds light on how to select right inventory managers and how to improve their ordering decision performance more efficiently through recognizing the impact of decision style and their behavioral tendencies in different profit margin conditions in the newsvendor problem.

Keywords

Inventory decision Newsvendor Decision style Ordering behaviors Laboratory experiment 

Notes

Acknowledgements

This work was partly supported by the program granted by the National Natural Science Foundation of China (NSFC) (No. 71571051). The authors cordially thank the editor and two anonymous referee for their helpful comments and suggestions, which significantly help improve this paper.

Compliance with ethical standards

Conflict of interest

The authors declare that they have no conflict of interest.

Human and animal participants

This article does not contain any studies with animals performed by any of the authors. All procedures performed in studies involving human participants were in accordance with the ethical standards of the institutional and/or national research committee and with the 1964 Helsinki declaration and its later amendments or comparable ethical standards.

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  1. 1.School of ManagementGuangdong University of TechnologyGuangzhouPeople’s Republic of China
  2. 2.SHU-UTS SILC Business SchoolShanghai UniversityShanghaiPeople’s Republic of China
  3. 3.Katz Graduate School of BusinessUniversity of PittsburghPittsburghUSA

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