Newsvendor overconfidence and supply uncertainty: Pull-to- or push-from-center?

The pull-to-center (PTC) is a robust phenomenon in behavioral operations characterized by the newsvendor trade-off between potentially under and oversupplying a market characterized by uncertain demand. However, experiments and analytical models have primarily analyzed behavior where uncertainty is limited to demand. In practice, supply uncertainty is a prevalent challenge, adding substantial complexity to newsvendor decisions. We examine whether the PTC effect occurs for a behavioral newsvendor under demand and supply uncertainties by analytically modeling overconfidence, a parsimonious driver of PTC newsvendor orders. Contrasting a newsvendor problem without supply uncertainty, we find that greater overconfidence can counteract the PTC effect by pushing orders away from the center, which we term the push-from-center (PFC) effect. The existence of PFC results in two important implications. The first is that interventions for debiasing overconfidence without supply uncertainty can degrade performance under supply uncertainty, which we illustrate using a numerical experiment. The second is that decomposing uncertainty information into supply and demand can have increasing benefits for overconfident newsvendors compared to aggregating the uncertainty risk into a single effective demand distribution. We test these predictions using an experiment and find increasing benefits for decomposing explicit supply uncertainty information for overconfident newsvendors due to PFC behavior. Beyond offering insights into conditions where newsvendors benefit from overconfidence, our study highlights the importance of considering the interaction between risk information aggregation and behavioral biases.