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PHBS Seminar Series:Behavioral Ordering, Competition and Profits: An Experimental Investigation

Time:2019-01-10 12:57:00  Hits:[]

We investigate the impact of behavioral ordering on profitability under competition. Specifically, we use controlled laboratory experiments to evaluate the differences in profits between a behavioral competitor where a human places orders, and a management science-driven competitor where orders are placed according to one of several plausible policies based on existing literature and managerial practice. Unlike the full-information game-theoretic models that assume rational decision-makers, these policies mimic practical situations by using less information and do not assume that their human competitors make fully rational decisions. Most prior literature focuses on non-competitive settings, where behaviorally-biased deviations from optimal order quantities result in small expected profit losses. The main result of our experiments is that human competitors receive a substantially lower profit than the equilibrium expected profit, while their competitors receive substantially higher profits, for a net difference several times larger than what was previously reported.
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