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Experimental Economics and Supply-Chain Management

Author

Listed:
  • Rachel Croson

    () (Department of Operations and Information Management, The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104-6366)

  • Karen Donohue

    () (Department of Operations and Management Science, The Carlson School, University of Minnesota, Minneapolis, Minnesota 55455-9940)

Abstract

One area in which experimental economics methods have been used to study operations problems is supply-chain management. We survey results from a series of human experiments based on the popular beer distribution game and find cognitive limitations on the part of managers, in particular an underweighting of the supply line. We suggest mechanisms that may alleviate this bias, including sharing inventory and point-of-sale data, and reducing ordering and shipping delays. Our research provides managerial lessons and identifies supply-chain issues that need further experimental study.

Suggested Citation

  • Rachel Croson & Karen Donohue, 2002. "Experimental Economics and Supply-Chain Management," Interfaces, INFORMS, vol. 32(5), pages 74-82, October.
  • Handle: RePEc:inm:orinte:v:32:y:2002:i:5:p:74-82
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    File URL: http://dx.doi.org/10.1287/inte.32.5.74.37
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    References listed on IDEAS

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    1. Daniel Kahneman & Dan Lovallo, 1993. "Timid Choices and Bold Forecasts: A Cognitive Perspective on Risk Taking," Management Science, INFORMS, vol. 39(1), pages 17-31, January.
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    3. Manuel P. Baganha & Morris A. Cohen, 1998. "The Stabilizing Effect of Inventory in Supply Chains," Operations Research, INFORMS, vol. 46(3-supplem), pages 72-83, June.
    4. Aram G. Sogomonian & Christopher S. Tang, 1993. "A Modeling Framework for Coordinating Promotion and Production Decisions within a Firm," Management Science, INFORMS, vol. 39(2), pages 191-203, February.
    5. Andrew J. Clark & Herbert Scarf, 2004. "Optimal Policies for a Multi-Echelon Inventory Problem," Management Science, INFORMS, vol. 50(12_supple), pages 1782-1790, December.
    6. Gérard P. Cachon, 1999. "Managing Supply Chain Demand Variability with Scheduled Ordering Policies," Management Science, INFORMS, vol. 45(6), pages 843-856, June.
    7. Awi Federgruen & Paul Zipkin, 1984. "Computational Issues in an Infinite-Horizon, Multiechelon Inventory Model," Operations Research, INFORMS, vol. 32(4), pages 818-836, August.
    8. John D. Sterman, 1989. "Modeling Managerial Behavior: Misperceptions of Feedback in a Dynamic Decision Making Experiment," Management Science, INFORMS, vol. 35(3), pages 321-339, March.
    9. Gérard P. Cachon & Martin A. Lariviere, 1999. "Capacity Choice and Allocation: Strategic Behavior and Supply Chain Performance," Management Science, INFORMS, vol. 45(8), pages 1091-1108, August.
    10. Smith, Vernon L, 1976. "Experimental Economics: Induced Value Theory," American Economic Review, American Economic Association, vol. 66(2), pages 274-279, May.
    11. Hau L. Lee & V. Padmanabhan & Seungjin Whang, 1997. "Information Distortion in a Supply Chain: The Bullwhip Effect," Management Science, INFORMS, vol. 43(4), pages 546-558, April.
    12. Andrew Schotter & Keith Weigelt, 1992. "Behavioral Consequences of Corporate Incentives and Long-Term Bonuses: An Experimental Study," Management Science, INFORMS, vol. 38(9), pages 1280-1298, September.
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    Citations

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    Cited by:

    1. Barbara B. Flynn & Xenophon Koufteros & Guanyi Lu, 2016. "On Theory in Supply Chain Uncertainty and its Implications for Supply Chain Integration," Journal of Supply Chain Management, Institute for Supply Management, vol. 52(3), pages 3-27, July.
    2. Wilfred Amaldoss & Teck-Hua Ho & Aradhna Krishna & Kay-Yut Chen & Preyas Desai & Ganesh Iyer & Sanjay Jain & Noah Lim & John Morgan & Ryan Oprea & Joydeep Srivasatava, 2008. "Experiments on strategic choices and markets," Marketing Letters, Springer, vol. 19(3), pages 417-429, December.
    3. Srinagesh Gavirneni & Yusen Xia, 2009. "Anchor Selection and Group Dynamics in Newsvendor Decisions---A Note," Decision Analysis, INFORMS, vol. 6(2), pages 87-97, June.

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