Learning by Doing in the Newsvendor Problem: A Laboratory Investigation of the Role of Experience and Feedback

Authors:
Gary E. Bolton;Elena Katok
Affiliations:
Smeal College of Business, Pennsylvania State University, University Park, Pennsylvania 16802;Smeal College of Business, Pennsylvania State University, University Park, Pennsylvania 16802
Venue:
Manufacturing & Service Operations Management
Year:
2008

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Abstract

We investigate learning by doing in the newsvendor inventory problem. An earlier study observed that decision makers tend to anchor their orders around average demand and fail to adjust sufficiently toward the expected profit-maximizing order. Principles of behavioral theory suggest some relatively simple interventions into the decision maker's experience and feedback that might improve performance, and these guide our investigation. The results imply that the institutional organization of experience and feedback may have a significant influence on whether inventory is stocked optimally.