{"title":"EXPRESS: Newsvendor Competition with Endogenous Biases","authors":"Xiaoyang Long, Yaozhong Wu","doi":"10.1177/10591478241252157","DOIUrl":null,"url":null,"abstract":"Extensive studies have revealed that newsvendor decisions by human decision-makers are often biased by cognitive limitations, and, therefore, fail to achieve optimal profits prescribed by normative models. These biases are typically considered as liabilities in individual inventory decision-making, and much research has focused on developing methods to debias the decision-maker—for example, by providing decision support tools. However, in competitive settings biases can provide a competitive advantage, such that a biased newsvendor may earn a higher profit than an unbiased one. This raises the question of whether and when firms should debias their decision-makers. In this paper, we analyze decision biases that are endogenous rather than exogenous in competing newsvendor games. Specifically, we develop a two-stage game theoretic model in which competing firms first select their decision-makers typefied by their bias levels, and then engage in a classic inventory competition game. Our analysis confirms the positive effect of the decision-maker’s bias on a firm’s economic outcome. However, this effect only appears in competitions in which decision biases are exogenously given. When biases are endogenously selected, firms are always (weakly) worse off than if they all had rational decision-makers. Our results suggest that debiasing at the industry level (e.g., adopting advanced inventory planning software) could benefit all players; however, individual firms do not have the incentive to do so in the absence of coordination mechanisms.","PeriodicalId":4,"journal":{"name":"ACS Applied Energy Materials","volume":"23 8","pages":""},"PeriodicalIF":5.4000,"publicationDate":"2024-04-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"ACS Applied Energy Materials","FirstCategoryId":"91","ListUrlMain":"https://doi.org/10.1177/10591478241252157","RegionNum":3,"RegionCategory":"材料科学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"CHEMISTRY, PHYSICAL","Score":null,"Total":0}
引用次数: 0
Abstract
Extensive studies have revealed that newsvendor decisions by human decision-makers are often biased by cognitive limitations, and, therefore, fail to achieve optimal profits prescribed by normative models. These biases are typically considered as liabilities in individual inventory decision-making, and much research has focused on developing methods to debias the decision-maker—for example, by providing decision support tools. However, in competitive settings biases can provide a competitive advantage, such that a biased newsvendor may earn a higher profit than an unbiased one. This raises the question of whether and when firms should debias their decision-makers. In this paper, we analyze decision biases that are endogenous rather than exogenous in competing newsvendor games. Specifically, we develop a two-stage game theoretic model in which competing firms first select their decision-makers typefied by their bias levels, and then engage in a classic inventory competition game. Our analysis confirms the positive effect of the decision-maker’s bias on a firm’s economic outcome. However, this effect only appears in competitions in which decision biases are exogenously given. When biases are endogenously selected, firms are always (weakly) worse off than if they all had rational decision-makers. Our results suggest that debiasing at the industry level (e.g., adopting advanced inventory planning software) could benefit all players; however, individual firms do not have the incentive to do so in the absence of coordination mechanisms.
期刊介绍:
ACS Applied Energy Materials is an interdisciplinary journal publishing original research covering all aspects of materials, engineering, chemistry, physics and biology relevant to energy conversion and storage. The journal is devoted to reports of new and original experimental and theoretical research of an applied nature that integrate knowledge in the areas of materials, engineering, physics, bioscience, and chemistry into important energy applications.