How to Compete Against a Behavioral Newsvendor

Овчінніков, Антон; Moritz, Brent; Quiroga, Bernardo F.

doi:10.1111/poms.12361

Cited by 53 publications

(76 citation statements)

References 27 publications

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“…To study the ordering behavior in a competitive newsvendor problem, Ovchinnikov et al. () propose a demand‐based behavioral model that incorporates several well‐established newsvendor ordering regularities, including the pull‐to‐center effect, demand chasing, and reference dependence. The OMQ model takes the following forms:

\begin{matrix} q_{i, t} = & {italicβ}_{0} + {italicβ}_{1} d_{i, t - 1} + {italicβ}_{2} {()(q_{i, t - 1} - d_{i, t - 1})}^{+} \\ + {italicβ}_{3} {()(d_{i, t - 1} - q_{i, t - 1})}^{+}, \end{matrix}

where

q_{i, t}

is the observed order quantity by individual i in round t , and

d_{i, t - 1}

is the effective demand in round t − 1.…”

Section: Behavioral Modelsmentioning

confidence: 99%

“…In addition to Ovchinnikov et al. (), Quiroga et al. () consider a similar situation in which a behavioral newsvendor competes against a management‐science‐driven newsvendor and find that profit losses are orders‐of‐magnitude larger than existing literature.…”

Section: Introductionmentioning

confidence: 98%

“…We then compare the results with those of a linear behavioral model developed by Ovchinnikov et al. (). This linear model characterizes the future ordering decisions as a result of past outcomes, thus not considering any strategic behavior.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Modeling Strategic Behavior in The Competitive Newsvendor Problem: An Experimental Investigation

Feng

Zhang

2017

Production and Operations Management

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This study experimentally investigates ordering behavior in the competitive newsvendor problem. We consider a duopoly market setting with two identical newsvendors selling the same perishable goods in a common market. Our experimental results show that average observed orders systematically deviate from the Nash equilibrium, and exhibit a similar pull‐to‐center pattern as in the classic non‐competitive newsvendor experiments: average orders fall below the Nash equilibrium in the high‐margin condition, and above the Nash equilibrium in the low‐margin condition. More importantly, the observed orders in the duopoly market are significantly higher than that in the non‐competitive newsvendor market, even in situations where standard inventory models predict no difference. We explain the ordering behavior using a strategic experience‐weighted attraction (EWA) model, which captures players' propensities for strategic thinking in game settings. Our empirical analysis suggests that the strategic EWA model generates more accurate predictions of future ordering behavior than an existing linear adaptive model without concerning strategic thinking. Further analysis shows that individuals are heterogeneous in their propensities to be a strategic player. Our research indicates the importance of modeling strategic behavior when analyzing behavioral decisions in competitive (game) environments.

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\begin{matrix} q_{i, t} = & {italicβ}_{0} + {italicβ}_{1} d_{i, t - 1} + {italicβ}_{2} {()(q_{i, t - 1} - d_{i, t - 1})}^{+} \\ + {italicβ}_{3} {()(d_{i, t - 1} - q_{i, t - 1})}^{+}, \end{matrix}

where

q_{i, t}

is the observed order quantity by individual i in round t , and

d_{i, t - 1}

is the effective demand in round t − 1.…”

Section: Behavioral Modelsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 98%

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Modeling Strategic Behavior in The Competitive Newsvendor Problem: An Experimental Investigation

Feng

Zhang

2017

Production and Operations Management

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show abstract

“…he chooses high yielding order quantities with larger probability Simon (1955), Su (2008), Kremer et al (2010), Katok (2011), (Ovchinnikov et al 2015) overconfidenc e bias (or, overprecision) tendency of decision maker to overestimate their own opinions due to precise information that they believe they have An overconfident newsvendor will underestimate the variance of demand and make suboptimal ordering decisions. Over-order in low profit-margin Croson et al (2008), Ren and Croson (2013), Ren et al (2017) Cui et al (2013) 4.1 Individual Decision-Making Biases Schweitzer and Cachon (2000) found that the PTC effect observed in their experimental data results were not consistent with alternatives like risk aversion preferences, loss aversion, waste aversion bias, stock out aversion, or underestimating opportunity costs (Table 3), instead they found two explanations for this behavior: (1) individual's preferences to reduce ex-post inventory error; and (2) subjects suffer from anchoring and insufficient adjustment bias.…”

Section: Figurementioning

confidence: 99%

“…So, the model fails to account for heterogeneity in the individuals and thus no single explanation for the observed behavior. Random error model of Su (2008) is also not useful for the newsvendor under competition (Ovchinnikov et al 2015), where a decision-maker can predict some regularities in the ordering pattern of competing newsvendor by applying decision support models.…”

Section: Bounded Rationalitymentioning

confidence: 99%

A Review of Behavioral Decision Making in the Newsvendor Problem

Sharma

Nandi

2018

OSCM: An Int. Journal

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Schweitzer and Cachon (2000) demonstrated that choices of decision-maker in the newsvendor problem setting systematically deviate from those that maximize their expected profit. Since then, a large body of empirical and theoretical studies has been published to describe the newsvendor decisionmaking behavior. To establish further, the purpose of this paper is twofold. First, it identifies the various behavioral theories and biases that explain the newsvendor behavior by employing a systematic literature review of peer-reviewed articles published in leading journals from 2000 to 2017. Second, it classifies and analyzes the identified literature from three dimensions of human behavior namely: individual decision making biases, social preferences, and cultural aspects. Our findings from the review show that research has primarily emphasized individual decision making biases while social and cultural aspects lack analysis and are worthy of investigation. Finally, we discuss some directions for future research, followed by the conclusion and limitations of this review.

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Behavioral Inventory Decisions

Becker‐Peth

Thonemann

2018

The Handbook of Behavioral Operations

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How to Compete Against a Behavioral Newsvendor

Cited by 53 publications

References 27 publications

Modeling Strategic Behavior in The Competitive Newsvendor Problem: An Experimental Investigation

Modeling Strategic Behavior in The Competitive Newsvendor Problem: An Experimental Investigation

A Review of Behavioral Decision Making in the Newsvendor Problem

Behavioral Inventory Decisions

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