Service Networks with Open Routing and Procedurally Rational Customers

45 Pages Posted: 5 Jul 2019 Last revised: 25 Aug 2022

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; University College London

Yehua Wei

Decision Sciences Area, Fuqua School of Business, Duke University

Date Written: August 24, 2022

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

Suggested Citation

Frazelle, Andrew and Huang, Tingliang and Wei, Yehua, Service Networks with Open Routing and Procedurally Rational Customers (August 24, 2022). 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

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

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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