Bounded Rationality in Service Systems

Tingliang Huang (), Gad Allon () and Achal Bassamboo ()
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Tingliang Huang: Department of Management Science and Innovation, University College London, London WC1E 6BT, United Kingdom
Gad Allon: Kellogg School of Management, Northwestern University, Evanston, Illinois 60208
Achal Bassamboo: Kellogg School of Management, Northwestern University, Evanston, Illinois 60208

Manufacturing & Service Operations Management, 2013, vol. 15, issue 2, 263-279

Abstract: The traditional operations management and queueing literature typically assumes that customers are fully rational. In contrast, in this paper we study canonical service models with boundedly rational customers. We capture bounded rationality using a model in which customers are incapable of accurately estimating their expected waiting time. We investigate the impact of bounded rationality from both a profit-maximizing firm's perspective and a social planner's perspective. For visible queues with the optimal price, bounded rationality results in revenue and welfare loss; with a fixed price, bounded rationality can lead to strict social welfare improvement. For invisible queues, bounded rationality benefits the firm when its level is sufficiently high. Ignoring bounded rationality, when present yet small, can result in significant revenue and welfare loss.

Keywords: behavioral operations; service operations; bounded rationality; queueing; consumer behavior (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (32)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:15:y:2013:i:2:p:263-279

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