Service Networks with Open Routing and Procedurally Rational Customers

Abstract

Self-interested customers populate various service systems, and these customers may not be fully rational. Customers' form of reasoning and its consequences for system performance affect the planning decisions of service providers. We study procedurally rational customers---that is, customers who make decisions based on a sample containing anecdotes of the system times experienced by other customers. Specifically, we investigate the implications of procedurally rational customers on service networks with open routing, i.e., those in which customers visit multiple stations but 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 be successful in obtaining anecdotes about all possible actions. We introduce a novel sampling process that extends the procedural rationality framework to incorporate the discernibility of customers: better discernibility implies that customers are more likely to obtain anecdotes about all actions. We characterize the response of procedurally rational customers under this model. We study equilibrium routing profiles, where the fraction of customers choosing each route becomes stationary. 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). More strikingly, the procedurally rational outcome also converges to the fully rational equilibrium as the discernibility parameter grows large, even if the number of anecdotes remains small. To achieve a good customer experience, it is crucial for customers to obtain anecdotes about each alternative. In our open-routing service network, if procedurally rational customers can obtain anecdotes about all actions (high discernibility), then despite the sampling error, their decisions will closely resemble those of fully rational customers. If they cannot (low discernibility), then their choices can deviate significantly from those of fully rational customers, leading to substantial excess waits.

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