A Behavioral Remedy for the Censorship Bias

40 Pages Posted: 10 Feb 2016 Last revised: 14 Sep 2017

See all articles by Jordan Tong

Jordan Tong

University of Wisconsin - Madison - School of Business

Daniel Feiler

Tuck School of Business at Dartmouth

Richard P. Larrick

Duke University - Fuqua School of Business

Date Written: September 12, 2017

Abstract

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

Suggested Citation

Tong, Jordan and Feiler, Daniel and Larrick, Richard P., A Behavioral Remedy for the Censorship Bias (September 12, 2017). Tuck School of Business Working Paper No. 2729614. Available at SSRN: https://ssrn.com/abstract=2729614 or http://dx.doi.org/10.2139/ssrn.2729614

Jordan Tong (Contact Author)

University of Wisconsin - Madison - School of Business ( email )

975 University Avenue
Madison, WI 53706
United States

Daniel Feiler

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States

Richard P. Larrick

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

HOME PAGE: http://www.fuqua.duke.edu/faculty/alpha/larrick.htm

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