ORDERING DECISIONS AND COORDINATION IN SUPPLY CHAINS: A BEHAVIORAL PERSPECTIVE

This dissertation investigates the impact of various behavioral factors on supply chain management, using a laboratory approach. A series of experiments is designed to challenge the assumptions of several basic theoretical models used in supply chain management that have ignored behavioral dynamics. We use controlled experimental settings to confront decision makers (mostly college students) with decision tasks conformed to the assumptions being tested. Our human subjects are motivated by real financial incentives based on their performance in the simulated game. The dissertation includes three interrelated essays. Chapters I and II provide an empirical test of the supply chain contracting theory. This theory assumes that supply chain members behave in a way that maximizes their own expected profits. However, our experimental results in Chapter I show that retailers have decision biases and often deviate from the optimal newsvendor solutions, whereas suppliers tend to behave risk-aversely rather than risk-neutrally. In addition, the results in Chapter II suggest that channel members have preferences over both their pecuniary payoff and their relative payoff standing. In other words, they are not purely self-interested but rather fairness-concerned. In Chapter III, we investigate mechanisms to reduce the bullwhip behavior, using the well-known Beer Distribution Game. And we find that when participants have obtained system-wide training experience and are allowed to communicate with their channel partners, the variability of orders in supply chains can be greatly decreased. This dissertation contributes to bridging the gap between two traditionally divergent fields of behavioral theory and operations management by identifying behavioral factors that have significant impact on the predictions of operational models.