A Meta‐Analysis of Newsvendor Experiments: Revisiting the Pull‐to‐Center Asymmetry

Abstract

T he field of behavioral operations has produced a rich tradition of experiments in newsvendor decision-making. Our study provides a meta-analysis of 24 papers in this research area; we confirm that the pull-to-center (PtC) effect, where average order quantities in a sample lie in between average demand and optimal order quantities, is a very stable observable phenomenon across studies. However, we also show that the asymmetry in the PtC effect between high-margin and low-margin conditions varies significantly from study to study; factors that allow predicting the extent and direction of the PtC asymmetry include the likelihood of obtaining losses, the way underage costs are presented to subjects, and the existence of a decision support system. We validate these factors using a controlled experiment. In conclusion, the PtC asymmetry appears less as a fundamental attribute of human behavior, but rather as a function of the design aspects of the experiment.

Pricing and ordering by a loss averse newsvendor with reference dependence

“…However, there is decision bias between the actual order and optimal decision. Experiments have repeatedly shown a pull-to-center effect: newsvendors consistently underorder a high-margin product and overorder a low-margin product (Schweitzer and Cachon, 2000;Zhang and Siemsen, 2019). Prospect theory (Kahneman and Tversky, 1979) has been applied to explain the observed ordering bias.…”

Inventory and ordering decisions: a systematic review on research driven through behavioral experiments

“…The 90 papers deemed to be relevant through this process were cross checked with reference lists of significant preceding works in this research domain. More specifically, we cross checked the reference lists of the two review chapters mentioned earlier (Becker-Peth and Thonemann, 2018; Kremer and Minner, 2008) and seminal literature (Benzion et al , 2008; Bolton and Katok, 2008; Bolton et al , 2012; Bostian et al , 2008; Croson and Donohue, 2006; Lurie and Swaminathan, 2009; Schweitzer and Cachon, 2000; Steckel et al , 2004) and publications over the past couple of years (Castañeda and Gonçalves, 2018; D'Urso et al , 2017; Schultz et al , 2018; Stangl and Thonemann, 2017; Tokar et al , 2016; Villa and Castañeda, 2018; Zhang and Siemsen, 2019; Zhao and Zhao, 2018). This uncovers 11 papers that are not captured by our original search terms.…”

“…They posit (1) how likely it is to make a loss in high or low margin conditions, (2) how salient the underage costs are framed, and (3) whether a decision support system exists are three factors determining the presence of the pull-to-center effect. The research concludes that the pull-to-center effect is an empirical phenomenon while the asymmetry of it is not (Zhang and Siemsen, 2019). Interestingly, the authors recommend sharing information on underage loss is advantageous in a high margin setting while recommending not to do so in low margin settings.…”

“…A recent study that analyses 24 newsvendor experiments finds that design factors of experiments drive the pull-to-center asymmetry (Zhang and Siemsen, 2019). They argue that if the pull-to-center effect is purely a result of human behavior, the asymmetry observed in different studies should be consistent.…”

Coping with Loss Aversion and Risk Management in the Supply Chain Coordination

“…Nevertheless, there are many counter examples implying that the decision makers do not always practice as the risk-neutral models predict (e.g., [13][14][15][16][17]). For example, through experiments, Schweitzer and Cachon [14] and Zhang and Siemsen [17] show that subjects often underorder a high-profit product and overorder a low-profit product, which is called pull-to-center effect. Thus, developing alternative choice models instead of risk neutrality to represent more realistic situations is becoming increasingly important.…”