IDEAS home Printed from https://ideas.repec.org/a/bla/popmgt/v30y2021i9p2803-2813.html
   My bibliography  Save this article

Transshipment Between Overconfident Newsvendors

Author

Listed:
  • Jialu Li
  • Meng Li
  • Xuan Zhao

Abstract

This study investigates the impacts of transshipment between overconfident newsvendors who perceive the expected outcome of a random event as more certain than it actually is. The conventional wisdom is that transshipment is a risk‐pooling strategy for improving newsvendors’ performance. However, we find that overconfident newsvendors can be worse off with transshipment as compared to without transshipment. This result remains when overconfident newsvendors possess other behaviors such as fairness, demand‐ and supply‐side thinking, loss aversion, and demand anchoring. We also utilize data from controlled experiments to demonstrate that overconfidence is a robust behavior with transshipment.

Suggested Citation

  • Jialu Li & Meng Li & Xuan Zhao, 2021. "Transshipment Between Overconfident Newsvendors," Production and Operations Management, Production and Operations Management Society, vol. 30(9), pages 2803-2813, September.
    • Handle: RePEc:bla:popmgt:v:30:y:2021:i:9:p:2803-2813
    DOI: 10.1111/poms.13424
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/poms.13424
    Download Restriction: no
    File URL: https://libkey.io/10.1111/poms.13424?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Yufei Ren & Rachel Croson, 2013. "Overconfidence in Newsvendor Orders: An Experimental Study," Management Science, INFORMS, vol. 59(11), pages 2502-2517, November.
    2. 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.
    3. Villa, Sebastián & Castañeda, Jaime Andrés, 2018. "Transshipments in supply chains: A behavioral investigation," European Journal of Operational Research, Elsevier, vol. 269(2), pages 715-729.
    4. Katok, Elena, 2011. "Using Laboratory Experiments to Build Better Operations Management Models," Foundations and Trends(R) in Technology, Information and Operations Management, now publishers, vol. 5(1), pages 1-86, November.
    5. Georgia Perakis & Guillaume Roels, 2007. "The Price of Anarchy in Supply Chains: Quantifying the Efficiency of Price-Only Contracts," Management Science, INFORMS, vol. 53(8), pages 1249-1268, August.
    6. Michael D. Grubb & Matthew Osborne, 2015. "Cellular Service Demand: Biased Beliefs, Learning, and Bill Shock," American Economic Review, American Economic Association, vol. 105(1), pages 234-271, January.
    7. Dominic D. P. Johnson & James H. Fowler, 2011. "The evolution of overconfidence," Nature, Nature, vol. 477(7364), pages 317-320, September.
    8. Meng Li, 2019. "Overconfident Distribution Channels," Production and Operations Management, Production and Operations Management Society, vol. 28(6), pages 1347-1365, June.
    9. Michael D. Grubb, 2009. "Selling to Overconfident Consumers," American Economic Review, American Economic Association, vol. 99(5), pages 1770-1807, December.
    10. Lingxiu Dong & Nils Rudi, 2004. "Who Benefits from Transshipment? Exogenous vs. Endogenous Wholesale Prices," Management Science, INFORMS, vol. 50(5), pages 645-657, May.
    11. Shan Li & Kay‐Yut Chen, 2020. "The Commitment Conundrum of Inventory Sharing," Production and Operations Management, Production and Operations Management Society, vol. 29(2), pages 353-370, February.
    12. Nils Rudi & Sandeep Kapur & David F. Pyke, 2001. "A Two-Location Inventory Model with Transshipment and Local Decision Making," Management Science, INFORMS, vol. 47(12), pages 1668-1680, December.
    13. Yufei Ren & David Croson & Rachel Croson, 2017. "The overconfident newsvendor," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 68(5), pages 496-506, May.
    14. 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.
    15. Michael Becker-Peth & Elena Katok & Ulrich W. Thonemann, 2013. "Designing Buyback Contracts for Irrational But Predictable Newsvendors," Management Science, INFORMS, vol. 59(8), pages 1800-1816, August.
    16. Tony Haitao Cui & Jagmohan S. Raju & Z. John Zhang, 2007. "Fairness and Channel Coordination," Management Science, INFORMS, vol. 53(8), pages 1303-1314, August.
    17. Brad M. Barber & Terrance Odean, 2001. "Boys will be Boys: Gender, Overconfidence, and Common Stock Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 261-292.
    18. Richard H. Thaler, 2016. "Behavioral Economics: Past, Present, and Future," American Economic Review, American Economic Association, vol. 106(7), pages 1577-1600, July.
    19. Dan Lovallo & Colin Camerer, 1999. "Overconfidence and Excess Entry: An Experimental Approach," American Economic Review, American Economic Association, vol. 89(1), pages 306-318, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yan, Xiaoyu & Liu, Weihua & Tang, Ou & Hou, Jiahe, 2024. "When will an overconfident entrant in the two-sided market do more good than harm?," International Journal of Production Economics, Elsevier, vol. 267(C).
    2. Choi, Tsan-Ming & Zhang, Ting, 2023. "Will being an angel bring more harm than good? Altruistic newsvendors with different risk attitudes," European Journal of Operational Research, Elsevier, vol. 305(3), pages 1153-1165.
    3. Chen, Xin & Xu, Weijun & Wu, Meng, 2024. "Newsvendor overconfidence and advertising," Omega, Elsevier, vol. 126(C).
    4. Jammernegg, Werner & Kischka, Peter & Silbermayr, Lena, 2022. "Heterogeneity, asymmetry and applicability of behavioral newsvendor models," European Journal of Operational Research, Elsevier, vol. 301(2), pages 638-646.
    5. Qingren He & Taiwei Shi & Botao Liu & Wanhua Qiu, 2022. "The Ordering Optimization Model for Bounded Rational Retailer with Inventory Transshipment," Mathematics, MDPI, vol. 10(7), pages 1-16, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Meng Li & Nicholas C. Petruzzi & Jun Zhang, 2017. "Overconfident Competing Newsvendors," Management Science, INFORMS, vol. 63(8), pages 2637-2646, August.
    2. Andrew M. Davis & Rihuan Huang & Douglas J. Thomas, 2022. "Retailer Inventory Sharing in Two-Tier Supply Chains: An Experimental Investigation," Management Science, INFORMS, vol. 68(12), pages 8773-8790, December.
    3. Villa, Sebastián & Castañeda, Jaime Andrés, 2018. "Transshipments in supply chains: A behavioral investigation," European Journal of Operational Research, Elsevier, vol. 269(2), pages 715-729.
    4. Becker-Peth, Michael & Thonemann, Ulrich W., 2016. "Reference points in revenue sharing contracts—How to design optimal supply chain contracts," European Journal of Operational Research, Elsevier, vol. 249(3), pages 1033-1049.
    5. Weihua Liu & Xinran Shen & Di Wang, 2020. "The impacts of dual overconfidence behavior and demand updating on the decisions of port service supply chain: a real case study from China," Annals of Operations Research, Springer, vol. 291(1), pages 565-604, August.
    6. Jain, Tarun & Hazra, Jishnu & Cheng, T.C.E., 2018. "Sourcing under overconfident buyer and suppliers," International Journal of Production Economics, Elsevier, vol. 206(C), pages 93-109.
    7. Karen Donohue & Özalp Özer, 2020. "Behavioral Operations: Past, Present, and Future," Manufacturing & Service Operations Management, INFORMS, vol. 22(1), pages 191-202, January.
    8. Zhisong Chen & Chaonan Tang & Jianhui Peng, 2023. "Nominal effect vs actual effect: overconfidence in a consignment omnichannel," Electronic Commerce Research, Springer, vol. 23(2), pages 843-876, June.
    9. Yan Zhang & Juan Li & Qinglong Gou, 2017. "An allocation game model with reciprocal behavior and its applications in supply chain pricing decisions," Annals of Operations Research, Springer, vol. 258(2), pages 347-368, November.
    10. Tian Bai & Samuel N. Kirshner & Meng Wu, 2021. "Managing Overconfident Newsvendors: A Target‐Setting Approach," Production and Operations Management, Production and Operations Management Society, vol. 30(11), pages 3967-3986, November.
    11. Bhavani Shanker Uppari & Sameer Hasija, 2019. "Modeling Newsvendor Behavior: A Prospect Theory Approach," Manufacturing & Service Operations Management, INFORMS, vol. 21(3), pages 481-500, July.
    12. Chen, Xin & Xu, Weijun & Wu, Meng, 2024. "Newsvendor overconfidence and advertising," Omega, Elsevier, vol. 126(C).
    13. Yinghao Zhang & Karen Donohue & Tony Haitao Cui, 2016. "Contract Preferences and Performance for the Loss-Averse Supplier: Buyback vs. Revenue Sharing," Management Science, INFORMS, vol. 62(6), pages 1734-1754, June.
    14. Samuel N. Kirshner & Zhaolin Li, 2022. "Supply chain contracting with competing regretful retailers," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 2196-2211, September.
    15. Jordan Tong & Daniel Feiler, 2017. "A Behavioral Model of Forecasting: Naive Statistics on Mental Samples," Management Science, INFORMS, vol. 63(11), pages 3609-3627, November.
    16. Tony Haitao Cui & Guangwen Kong & Behrooz Pourghannad, 2020. "Is Simplicity the Ultimate Sophistication? The Superiority of Linear Pricing," Production and Operations Management, Production and Operations Management Society, vol. 29(7), pages 1767-1788, July.
    17. Ji, Xiang & Sun, Jiasen & Wang, Zebin, 2017. "Turn bad into good: Using transshipment-before-buyback for disruptions of stochastic demand," International Journal of Production Economics, Elsevier, vol. 185(C), pages 150-161.
    18. Kalakbandi, Vinay Kumar, 2018. "Managing the misbehaving retailer under demand uncertainty and imperfect information," European Journal of Operational Research, Elsevier, vol. 269(3), pages 939-954.
    19. Yufei Ren & David Croson & Rachel Croson, 2017. "The overconfident newsvendor," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 68(5), pages 496-506, May.
    20. Shan Li & Kay-Yut Chen & Ying Rong, 2020. "The Behavioral Promise and Pitfalls in Compensating Store Managers," Management Science, INFORMS, vol. 66(10), pages 4899-4919, October.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:popmgt:v:30:y:2021:i:9:p:2803-2813. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1937-5956 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.