Service Networks with Open Routing and Procedurally Rational Customers

Production and Operations Management

34 Pages Posted: 5 Jul 2019 Last revised: 27 Nov 2023

See all articles by Andrew Frazelle

Andrew Frazelle

University of Texas at Dallas - Naveen Jindal School of Management

Tingliang Huang

Haslam College of Business, University of Tennessee

Yehua Wei

Decision Sciences Area, Fuqua School of Business, Duke University

Date Written: November 20, 2023

Abstract

Self-interested customers' form of reasoning and its consequences for system performance affect the planning decisions of service providers. We study procedurally rational customers---customers who make decisions based on a sample containing anecdotes of the system times experienced by other customers. Specifically, we consider procedurally rational customers in two-station service networks with open routing, i.e., customers can choose the order in which to visit the stations. Because some actions may be less represented in the population, a given customer may not succeed in obtaining anecdotes about all possible actions. We introduce a novel sampling framework that extends the procedurally rational framework to incorporate the possibility that a customer may not receive any anecdotes for one of the actions; in this case, the customer uses a prior point estimate in lieu of the missing anecdotes. Under this framework, we study the procedurally rational equilibrium in open routing. We show first that as the sample size grows large, customers' estimates become more accurate, and the procedurally rational equilibrium converges to the fully rational equilibrium (which is also socially optimal). We then uncover two main findings. First, we obtain bounds on the distance between the procedurally rational and fully rational equilibrium, aiding operational planning and showing the rate of convergence to the fully rational outcome as the sample size of anecdotes of each individual customer grows. Second, if customers obtain anecdotes of both actions with high probability, then the equilibrium will approximate the fully rational outcome, despite the sampling error inherent to procedural rationality.

Keywords: open routing, bounded rationality, anecdotal reasoning, behavioral operations, queueing

Suggested Citation

Frazelle, Andrew and Huang, Tingliang and Wei, Yehua, Service Networks with Open Routing and Procedurally Rational Customers (November 20, 2023). Production and Operations Management, Available at SSRN: https://ssrn.com/abstract=3414468 or http://dx.doi.org/10.2139/ssrn.3414468

Andrew Frazelle (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

HOME PAGE: http://andrewfrazelle.com

Tingliang Huang

Haslam College of Business, University of Tennessee ( email )

Haslam College of Business
Stokely Management Center
Knoxville, TN 37000
United States

Yehua Wei

Decision Sciences Area, Fuqua School of Business, Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

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