A Behavioral Remedy for the Censorship Bias
40 Pages Posted: 10 Feb 2016 Last revised: 14 Sep 2017
Date Written: September 12, 2017
Existing evidence suggests that managers exhibit a censorship bias: demand beliefs tend to be biased low when lost sales from stockouts are unobservable (censored demand) compared to when they are observable (uncensored demand). We develop a non-constraining, easily-implementable behavioral debias technique to help mitigate this tendency in demand forecasting and inventory decision-making settings. The debiasing technique has individuals record estimates of demand outcomes (REDO): participants explicitly record a self-generated estimate of every demand realization, allowing them to record a different value than the number of sales in periods with stockouts. In doing so, they construct a more representative sample of demand realizations (that differs from the sales sample). In three laboratory experiments with MBA and undergraduate students, this remedy significantly reduces downward bias in demand beliefs under censorship and leads to higher inventory order decisions.
Keywords: debias, censored demand, forecasting, newsvendor, nudge, inventory management, behavioral operations, nudge, choice architecture, behavioral economics
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