The Use of Framing in Inventory Decisions

Abstract

It is well established that human newsvendors tend to order insufficient inventory in high-margin situations, possibly due to implicit risk aversion. In this study, we investigate the use of framing to change newsvendors' risk preference in order to induce them to make better ordering decisions. Through an exploratory experiment and five different treatments of the newsvendor problem, we found risk reversal only in the treatments with one question. In the other four treatments and the exploratory experiment, we asked multiple questions and found no evidence of risk reversal. Thus, we conclude that risk reversal cannot reliably be used without pretesting and that behavioral theories need to be tested in context. Finally, we reaffirm research showing that relying on averages can mask the heterogeneity of human decision-making.

Behavioral Operations and Supply Chain Management–A Review and Literature Mapping

“…One of the seminal articles in this area is the work of Schweitzer and Cachon (), who studied a number of behavioral regularities in ordering such as risk attitudes (i.e., risk neutrality, risk aversion and risk seeking, loss aversion, prospect theory), anchoring and insufficient order adjustments in high profit, and low‐profit newsvendor settings under different demand scenarios. Other newsvendor studies investigated behavioral models such as bounded rationality (Su, ), risk aversion and expected utility maximization (Agrawal & Seshadri, ; Chen, Sim, Simchi‐Levi, & Sun, ; Chen, Xu, & Zhang, ; Choi, Ruszczyński, & Zhao, ; Kremer & Van Wassenhove, ), reference dependence and pull‐to‐center bias (Ho, Lim, & Cui, ), cognitive reflection (Moritz, Hill, & Donohue, ), overconfidence (Ren & Croson, ; Li, Petruzzi, & Zhang, ), mental accounting (Chen, Koek, & Tong, ), prospect theory (Nagarajan & Shechter, ; Long & Nasiry, ; Schultz, Robinson, Thomas, Schultz, & Mcclain, ), and judgment bias (Tokar, Aloysius, Williams, & Waller, ) to explain ordering behavior of decisionmakers in various circumstances.…”

Do Managers’ Dark Personality Traits Help Firms in Coping with Adverse Supply Chain Events?

“…With the recent exception of Schultz et al (), operations management scholars found that using rational cognitive modes yields better results than using intuitive modes (e.g., Narayanan & Moritz, ). However, when investigating supplier selections, supply management scholars (Kaufmann et al, ; Stanczyk et al, ) found mixed results for the effectiveness of using rational vs. intuitive cognitive modes.…”

Tolerância ao Risco de Gestores: Análise na Tomada de Decisões nos Campos Pessoal e Organizacional

“…Esses resultados indicam que o campo no qual se está tomando a decisão influencia na tolerância ao risco do decisor, mais especificamente, no caso deste estudo, na tolerância ao risco dos gestores. Esta influência é defendida por Sinha, 1994;Eriksen & Kvaløy, 2009;Andersson et al, 2014;Kvaløy & Luzuriaga, 2014;Pahlke, Strasser & Vieider, 2015;He & Villeval, 2017;Schultz et al, 2018, que destacam que as pessoas mudam sua tolerância ao risco quando muda o campo de decisão (Reynolds, Joseph & Sherwood, 2009). Em relação às variáveis de controle, ao analisar apenas as decisões que envolviam perspectiva de ganhos, também foram encontrados resultados estatisticamente significantes.…”