Behavioral perspective of newsvendor ordering decisions: review, analysis and insights

Abstract

PurposeThe traditional newsvendor model has focused on deriving the optimal order quantity that minimises the balance between stocking too much or too less number of products. However, the managers make inventory decisions based on intuitions and shortcuts, which may involve human errors and biases. The effect of cognitive biases and heuristics influencing the inventory ordering decisions in newsvendor settings is highlighted. The advancement of research associated to the newsvendor biases is reviewed to appreciate the behavioral aspects of the minds underlying this process.Design/methodology/approachThe use of experimental and non-experimental methods to investigate the ordering behaviour of newsvendors is described and we present a framework of the existing literature and highlight the research gaps to point to future research possibilities and priorities.FindingsThe proposed framework gives a systematic approach to confirm the existence of a substantial scope of research opportunities and points to specific areas for further research. It synthesizes the existing results of behavioral newsvendor research and will act as a key reference paper. In addition, it will help the practitioners and software tool vendors to comprehend the behavioral perspective of newsvendor preferences and design strategies to mitigate this effect. The insights will be helpful for academicians, researchers and practitioners working in the areas of experimental economics, behavioral economics, behavioral operations, bounded rationality theory, newsvendor modelling and supply chain contracts.Originality/valueA summary of literature in this evolving area of research is very scarce. Considering the impact of behavioral economics on managerial decisions in the contemporary world, it is highly important to have an educational summary which can act as a tool for the practitioners and researchers in the area of behavioral operations management.

Inventory decision-making biases: a review and suggestions for future research

“…While practitioners make decision in a complex, fragmented and clumsy environment, researchers are believed to develop inventory models that provide solution for an abstract environment. In the last decade, more emphasis being given to behavioural topics in decision-making, it became apparent that there are biases that impact the newsvendor decision making (Yamini, 2020). To minimise the difference between the two classes of thoughts, it is important for academicians to increase the collaboration with industries to know the business requirements and gain competitive advantage.…”

An operationalization of antifragility in inventory management

“…Bonney, 1994; De Vries, 2005). Understanding these circumstances has practical implications for informing inventory policy designs in uncertain settings (Yamini, 2020). Specifically, the understanding around how and when increases in uncertainty result in performance enhancement can inform operationalization of antifragility by leveraging the right amount of inventory in settings of considerable uncertainty.…”

Young adults’ default intention: influence of behavioral factors in determining housing and real estate loan repayment in India

“…General human characteristics like fear, anger, greed and selflessness highly impact an individual’s financial decisions (Oprean, 2014). Behavioral finance can explain why a person makes a decision through a relatively simple thought process but quantifying the implications of that decision on the individual is difficult (Rauwerda and De Graaf, 2021; Yamini, 2020). Behavioral scoring is used to make lending choices on existing clients, such as expanding or reducing credit limits (Gan et al , 2012), introducing new financial products or changing interest rates.…”