Predicting mean and variance in inventory order decisions
Li Chen,
Andrew M. Davis,
Dayoung Kim
Abstract:We develop a simple forecast‐anchoring model to explain and predict the mean and variance of observed inventory order decisions in a newsvendor problem. The model assumes that people employ a two‐step decision heuristic. In the first step, a behavioral bias may gravitate the decision maker's point forecast toward a random forecast versus a constant unbiased forecast. In the second step, a behavioral bias of the same magnitude may cause the decision maker to treat the point forecast as if it is the mean of pote… Show more
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