Learning-by-Doing in the Newsvendor Problem - a Laboratory Investigation of the Role of Experience and Feedback

29 Pages Posted: 28 Mar 2005

See all articles by Gary E. Bolton

Gary E. Bolton

Pennsylvania State University - Department of Supply Chain & Information Systems

Elena Katok

University of Texas at Dallas

Multiple version iconThere are 2 versions of this paper

Date Written: September 15, 2004

Abstract

We investigate learning-by-doing in the newsvendor inventory problem. An earlier study observed that decision makers tend to anchor orders away from the expected profit maximizing order. We study enhancements to the learning environment suggested by the behavioral literature. Extended experience improves performance some but feedback enhancements do little. A manipulation with a strong positive effect constrains inventory policy to a standing order for multiple periods, precluding responses to short term fluctuations in demand. With experience, our newsvendors collectively achieve over 90% of expected profit potential. It turns out that this kind of hands-on learning is more effective than providing newsvendors with an upfront statistical analysis that includes the expected profitability of orders. The results speak to the kinds of training and decision support that might improve the performance of inventory decision makers.

Suggested Citation

Bolton, Gary Eugene and Katok, Elena, Learning-by-Doing in the Newsvendor Problem - a Laboratory Investigation of the Role of Experience and Feedback (September 15, 2004). Available at SSRN: https://ssrn.com/abstract=673521 or http://dx.doi.org/10.2139/ssrn.673521

Gary Eugene Bolton

Pennsylvania State University - Department of Supply Chain & Information Systems ( email )

Dept. of Supply Chain & Information Systems
University Park, PA 16802-3306
United States
814-865-0611 (Phone)
814-863-2381 (Fax)

Elena Katok (Contact Author)

University of Texas at Dallas ( email )

Jindal School of Management
800 W. Campbell Dr.
Richardson, TX 75080
United States

HOME PAGE: http://www.utdallas.edu/~ekatok/

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