Human Behavior in Newsvendor Decisions: A Comparative Study with Experimental Results

Abstract

As decision makers do not make optimal decisions in practice despite the existence of optimal solutions in many models, there has been a rising interest in behavioral operations management recently. In this study, we aim for a comparative study to analyze the inventory decisions in Korea, America, and China, by conducting the same newsvendor experiment in Korea and compare the results with those of previous studies. From the comparative analysis, some national characteristics in decision-making processes have been observed but there is lowly significant difference in order quantities among the three groups. Korean students show lower level of understanding in demand distributions and tendencies of anchoring on the mean demand and being risk-averse. The finding that individuals make their own decisions differently based on their different behaviors suggests that we need to consider individual approach in analyzing human decision-making processes rather than adapting aggregate approach.

A Cross-National Examination of the Newsvendor Behavior

“…The authors also find that anchoring to one of the demand distribution parameters (minimum, maximum or mean) is more prevalent in the American subjects and Chinese subjects are more aware of the salvage values. Kwak (2015) replicate this study with Korean decision-makers and compare Korean findings with the Chinese and the American. This study demonstrates that the comprehension of the demand distribution is lower in the Korean, which the author attributes to Korean education system.…”