A Cross-National Examination of the Newsvendor Behavior

Abstract

Previous Behavioral Operations studies have revealed that there is a significant amount of individuality and heterogeneity in the ordering decisions made by human decision makers. Several studies investigated the effect of personal factors such as cognitive capabilities, personality traits and cultural norms on these decisions. In this study we conduct a simple lab experiment under newsvendor setting and investigate the effect of national differences in Turkish and American decision makers. The experiment scenario is based on two different settings, namely buyback setting and an equivalent revenue sharing setting. Specifically, under the buyback setting any leftovers are sold back to the supplier (which is represented by the computer) and under the revenue sharing setting for each sale made a revenue share is paid to the supplier. The data of the American subjects is obtained from the study conducted by Katok and Wu (2009) with the courtesy of the authors. The data of the Turkish subjects is obtained through a new experiment designed to match the setting of the American study. Our analysis shows that both groups of decision-makers under both settings place orders that are significantly lower than the optimal. For both cultural groups, under revenue sharing setting the subjects place lower orders than under buyback setting. Though, the difference is on average. When we compare Turkish and American decisions, we see that Turkish subjects place lower orders than American subjects, yet the difference is again on average. We also compare both groups in terms of decision heuristics and find that demand chasing behavior is more prevalent in the Turkish subjects.