An Examination of Human Fast and Frugal Heuristic Decisions for Truckload Spot Pricing

Michael Haughton () and Alireza Amini
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Michael Haughton: Lazaridis School of Business and Economics, Wilfrid Laurier University, Waterloo, ON N2L 3C5, Canada
Alireza Amini: Lazaridis School of Business and Economics, Wilfrid Laurier University, Waterloo, ON N2L 3C5, Canada

Logistics, 2024, vol. 8, issue 3, 1-16

Abstract: Background : One of several logistics contexts in which pricing decisions are made involves truckload carriers using reverse auctions to bid for prices they want for their transportation services while operating under uncertainty about factors such as their (i) operations costs and (ii) rivals’ bids. This study’s main purpose is to explore humans’ use of fast and frugal heuristics (FFHs) to navigate those uncertainties. In particular, the study clarifies the logic, theoretical underpinnings, and performance of human FFHs. Methods : The study uses behavior experiments as its core research method. Results : The study’s key findings are that humans use rational FFHs, yet, despite the rationality, human decisions yield average profits that are 35% below profits from price optimization models. The study also found that human FFHs yield very unstable outcomes: the FFH coefficient of variation in profit is twice as large as price optimization. Novel contributions inherent in these findings include (a) clarifying connections between spot market auction pricing and behavioral theories and (b) adding truckload spot markets to the literature’s contexts for measuring performance gaps between human FFHs and optimization models. Conclusions : The contributions have implications for practical purposes that include gauging spot pricing decisions made under constraints such as limited access to price optimization tools.

Keywords: spot market; truckload transportation; pricing decisions; behavior experiments; risk aversion theory; regret theory (search for similar items in EconPapers)
JEL-codes: L8 L80 L81 L86 L87 L9 L90 L91 L92 L93 L98 L99 M1 M10 M11 M16 M19 R4 R40 R41 R49 (search for similar items in EconPapers)
Date: 2024
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