Do competitive environments have an effect on managerial decision making? An empirical investigation of the newsvendor problem

Abstract

Our research aims to extend the literature by empirically investigating a few critical aspects of the Newsvendor decision making problem that have not been studied before. First, we look at the impact of playing the game in a competitive (tournament) environment, where all subjects in the room are ranked by their profits after each round. We also study the impact of incrementally adding "decision support information" on the outcome biases of the tournament participants. Finally, we investigate gender differences in decision making in the tournament newsvendor decision-making game. Our results show that displaying the best performance results per round (beyond telling each subject his own performance ranking) can increase the subjects' performance in terms of order quantities. We find that when we display the best performance results after each round in the competitive environment, subjects reduce their "pull to the center" bias, and gravitate toward the optimal order quantities in both high and low profit conditions as indirect decision support information is provided. We also observe that showing additional direct cues (such as the realized "fill rate" per round, or even plots of the expected profit as a function of the order size) has a negative effect on order quantity in the high profit condition, but helps participants in the low profit case after controlling for the learning-by-doing effect. Significant gender differences are only observed in the high competitive environment. © 2014 IEEE.