Experience Minimizes the Pull-to-Center Effect in Newsvendor Decisions

Problem definition : The asymmetric pull-to-center effect for newsvendors is a robust finding in operations, and understanding why newsvendors make suboptimal decisions is key for identifying ways to improve decision-making quality in this critical task. Although prior studies have indicated that experience does not substantially mitigate the pull-to-center effect, the experience levels achieved in those previous studies are limited in comparison with the experience level that a near-continuous time environment can provide. Methodology/results : We conduct a set of laboratory experiments using a near-continuous time environment to determine the effect that extensive experience has on newsvendor behavior and the extent to which resultant learning is transferable across conditions. Observed behavior clearly demonstrates that the pull-to-center effect is substantially reduced, if not eliminated, with sufficient experience and that this learning can have positive spillovers to more traditional settings. Further, the experiments suggest that it is the repeated feedback regarding a given inventory decision rather than the ability to explore many strategies that drives improved decision making. Managerial implications : Experience can mitigate the pull-to-center effect, and near-continuous time environments can be an effective training tool for gaining such experience.