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Decision making in the newsvendor problem: A cross-national laboratory study

  • Feng, Tianjun
  • Keller, L. Robin
  • Zheng, Xiaona
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    In this paper, we conduct a laboratory experiment using the classic newsvendor problem to examine cross-national differences in inventory ordering patterns between Chinese and American decision makers based on a theoretical examination of the role of the Doctrine of the Mean in Chinese decision making. Drawing on the theory of context-dependent preferences (specifically extremeness aversion), we also revisit the flat-maximum hypothesis of Bolton and Katok [12], i.e., "thinning the set of order options leads to newsvendor decisions that achieve a higher proportion of maximum expected profit." The results show that the "pull-to-center" effect is more prominent for Chinese than Americans, i.e., average order quantities of Chinese subjects are closer to the anchor of mean demand than those of American subjects. Furthermore, we find that thinning the set of order options such that the optimal order quantity is a middle option, not an extreme option in the choice set, leads to better performance in newsvendor decisions, which complements the flat-maximum hypothesis.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0305-0483(10)00025-3
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    Article provided by Elsevier in its journal Omega.

    Volume (Year): 39 (2011)
    Issue (Month): 1 (January)
    Pages: 41-50

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    Handle: RePEc:eee:jomega:v:39:y:2011:i:1:p:41-50
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    1. Starr, Martin K & Garber, H Newton, 1987. "Business in Japan and the United States of America; some implications for management science and operations research," Omega, Elsevier, vol. 15(5), pages 383-388.
    2. Xuanming Su, 2008. "Bounded Rationality in Newsvendor Models," Manufacturing & Service Operations Management, INFORMS, vol. 10(4), pages 566-589, May.
    3. Gary E. Bolton & Elena Katok, 2008. "Learning by Doing in the Newsvendor Problem: A Laboratory Investigation of the Role of Experience and Feedback," Manufacturing & Service Operations Management, INFORMS, vol. 10(3), pages 519-538, September.
    4. Yates, J. Frank & Lee, Ju-Whei & Bush, Julie G G., 1997. "General Knowledge Overconfidence: Cross-National Variations, Response Style, and "Reality"," Organizational Behavior and Human Decision Processes, Elsevier, vol. 70(2), pages 87-94, May.
    5. Gary E Bolton & Axel Ockenfels & Ulrich Thonemann, 2008. "Managers and Students as Newsvendors - How Out-of-Task Experience Matters," Working Paper Series in Economics 39, University of Cologne, Department of Economics.
    6. Simonson, Itamar, 1989. " Choice Based on Reasons: The Case of Attraction and Compromise Effects," Journal of Consumer Research, Oxford University Press, vol. 16(2), pages 158-74, September.
    7. Elke U. Weber & Christopher Hsee, 1998. "Cross-Cultural Differences in Risk Perception, but Cross-Cultural Similarities in Attitudes Towards Perceived Risk," Management Science, INFORMS, vol. 44(9), pages 1205-1217, September.
    8. Igbaria, M & Zviran, M, 1991. "End-user effectiveness: A cross-cultural examination," Omega, Elsevier, vol. 19(5), pages 369-379.
    9. Loch, Christoph H. & Wu, Yaozhong, 2007. "Behavioral Operations Management," Foundations and Trends(R) in Technology, Information and Operations Management, now publishers, vol. 1(3), pages 121-232, December.
    10. Sheu, Chwen & Chae, Bongsug & Yang, C.-L.Chen-Lung, 2004. "National differences and ERP implementation: issues and challenges," Omega, Elsevier, vol. 32(5), pages 361-371, October.
    11. Amos Tversky & Itamar Simonson, 1993. "Context-Dependent Preferences," Management Science, INFORMS, vol. 39(10), pages 1179-1189, October.
    12. Briley, Donnel A & Morris, Michael W & Simonson, Itamar, 2000. " Reasons as Carriers of Culture: Dynamic versus Dispositional Models of Cultural Influence on Decision Making," Journal of Consumer Research, Oxford University Press, vol. 27(2), pages 157-78, September.
    13. Maurice E. Schweitzer & Gérard P. Cachon, 2000. "Decision Bias in the Newsvendor Problem with a Known Demand Distribution: Experimental Evidence," Management Science, INFORMS, vol. 46(3), pages 404-420, March.
    14. AJ A. Bostian & Charles A. Holt & Angela M. Smith, 2008. "Newsvendor "Pull-to-Center" Effect: Adaptive Learning in a Laboratory Experiment," Manufacturing & Service Operations Management, INFORMS, vol. 10(4), pages 590-608, July.
    15. Yates, J. Frank & Zhu, Ying & Ronis, David L. & Wang, Deng-Feng & Shinotsuka, Hiromi & Toda, Masanao, 1989. "Probability judgment accuracy: China, Japan, and the United States," Organizational Behavior and Human Decision Processes, Elsevier, vol. 43(2), pages 145-171, April.
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