Research of the Influence of the Recency Effect on the Supply Line Underweighting

Abstract

A supply line underweighting is a robust decision error that can lead to the bullwhip effect. Finding the antecedents to the underweighting is valuable for lowering the operating cost of a supply chain. This research studies whether the recency effect, a cognitive bias under which recent information is emphasized more than historical information, can generate the supply line underweighting. A multiperiod ordering model is established, which characterizes the influence of the recency effect on the ordering behavior by a demand-chasing fashion. A series of simulation experiments are conducted and the results show that the recency effect is a behavioral antecedent to the supply line underweighting; under the influence of the recency effect, the increasing ordering lead-time and demand volatility will intensify the supply line underweighting.