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The Use of Framing in Inventory Decisions

Author

Listed:
  • Kenneth L. Schultz
  • Lawrence W. Robinson
  • L. Joseph Thomas
  • Johnathon Schultz
  • John O. McClain

Abstract

It is well established that human newsvendors tend to order insufficient inventory in high†margin situations, possibly due to implicit risk aversion. In this study, we investigate the use of framing to change newsvendors’ risk preference in order to induce them to make better ordering decisions. Through an exploratory experiment and five different treatments of the newsvendor problem, we found risk reversal only in the treatments with one question. In the other four treatments and the exploratory experiment, we asked multiple questions and found no evidence of risk reversal. Thus, we conclude that risk reversal cannot reliably be used without pretesting and that behavioral theories need to be tested in context. Finally, we reaffirm research showing that relying on averages can mask the heterogeneity of human decision†making.

Suggested Citation

  • Kenneth L. Schultz & Lawrence W. Robinson & L. Joseph Thomas & Johnathon Schultz & John O. McClain, 2018. "The Use of Framing in Inventory Decisions," Production and Operations Management, Production and Operations Management Society, vol. 27(1), pages 49-57, January.
    • Handle: RePEc:bla:popmgt:v:27:y:2018:i:1:p:49-57
    DOI: 10.1111/poms.12782
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    Citations

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    Cited by:

    1. Diego D’Urso & Ferdinando Chiacchio & Evangelia Demerouti, 2021. "Measuring How Decision Support Systems Improve Newsvendors’ Performance: The Subjects’ Version," Sustainability, MDPI, vol. 13(18), pages 1-16, September.
    2. Samuel N. Kirshner & Brent B. Moritz, 2023. "For the future and from afar: Psychological distance and inventory decision‐making," Production and Operations Management, Production and Operations Management Society, vol. 32(1), pages 170-188, January.
    3. Ha Ta & Terry L. Esper & Travis Tokar, 2021. "Appealing to the Crowd: Motivation Message Framing and Crowdsourcing Performance in Retail Operations," Production and Operations Management, Production and Operations Management Society, vol. 30(9), pages 3192-3212, September.
    4. Suresh P. Sethi & Sushil Gupta & Vipin K. Agrawal & Vijay K. Agrawal, 2022. "Nobel laureates’ contributions to and impacts on operations management," Production and Operations Management, Production and Operations Management Society, vol. 31(12), pages 4283-4303, December.
    5. Bao, Xing & Mirchandani, Prakash & Shang, Jennifer & Narayan, Ramasubbu, 2023. "Playing politics or playing right: Impacts of reputation-seeking on short-term disruptions management," Omega, Elsevier, vol. 116(C).
    6. Zuzana Brokesova & Cary Deck & Jana Peliova, 2022. "Pull-to-center is not just for newsvendors," PLOS ONE, Public Library of Science, vol. 17(2), pages 1-16, February.
    7. Kosgoda, Dilina & Perera, H. Niles & Aloysius, John, 2024. "Effective goal framing for managers using inventory management systems," European Journal of Operational Research, Elsevier, vol. 316(1), pages 138-151.
    8. Wei, Ying & Xiong, Sijia & Li, Feng, 2019. "Ordering bias with two reference profits: Exogenous benchmark and minimum requirement," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 128(C), pages 229-250.

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