 Behavioral biases: Average chasing and pull-to-center effectsCharles A. Holt Chapter 6 in The Origins and Evolution of Experimental Economics, 2026, pp 84-102 from Edward Elgar Publishing Abstract: This chapter highlights deviations from marginal analysis. The first experiment examines an inventory problem in which marginal analysis slices through complexity to provide the optimal decision. Even with full payoff information, systematic deviations from optimality are shown to follow a logit transformation of expected payoffs. This transformation pulls inventories toward the center of demand realizations, both when the optimal inventory and the median demand are low in this range and when they are high. The second experiment implemented an auction with a payoff asymmetry intended to induce overbidding (relative to Nash) in one treatment and underbidding in another. We observed overbidding in both, which is explained by risk aversion. The third experiment involved a sequential decision in which people lacked prior information about the landscape of payoff opportunities and had to learn from experience. An attraction to high average returns caused most subjects to miss the margin of optimality. Keywords: Inventory Management; Newsvendor Problem; Marginal Analysis; Average Chasing; Risk Aversion; Cognitive Response Test; Logit Probabilistic Choice (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:elg:eechap:24325_6 Ordering information: This item can be ordered from Access Statistics for this chapter More chapters in Chapters from Edward Elgar Publishing |
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