The Handbook of Behavioral Operations

11Behavioral Inventory Decisions: The Newsvendor and Other Inventory Settings

Michael Becker‐Peth^1,2 and Ulrich W. Thonemann²

¹ Rotterdam School of Management, Erasmus University, Rotterdam, The Netherlands

² Department of Supply Chain Management and Management Science, University of Cologne, Cologne, Germany

11.1 Introduction

Decision models to optimize inventory levels are one of the core elements of operations management. Most models assume that decision makers are fully rational and expected profit maximizing. Recent research, however, has challenged these assumptions. These studies test whether human decision makers are actually expected profit maximizing and search for decision biases to which decision makers might be prone.

In this chapter, we review and discuss the Behavioral Operations Management research that addresses inventory decisions, a line of research that focuses on the newsvendor model. The newsvendor model is one of the fundamental models in operations management. It was introduced by Arrow et al. (1951), and there is a large body of literature that analyzes variations and extensions of the model.

The majority of research regarding the newsvendor problem considers rational decision makers. Schweitzer and Cachon (2000) were among the first to analyze human decision makers in the newsvendor setting and identify the pull‐to‐center effect. The effect refers to the observation that people place order quantities that are between the expected‐profit‐maximizing ...