Do Managers Overreact When in Backlog? Evidence of Scope Neglect from a Supply Chain Experiment

Rogelio Oliva (), Huseyn Abdulla () and Paulo Gonçalves ()
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Rogelio Oliva: Department of Information and Operations Management, Texas A&M University, College Station, Texas 77843
Huseyn Abdulla: Department of Information and Operations Management, Texas A&M University, College Station, Texas 77843
Paulo Gonçalves: Università della Svizzera Italiana, 6900 Lugano, Switzerland

Manufacturing & Service Operations Management, 2022, vol. 24, issue 4, 1997-2009

Abstract: Problem definition : We empirically examine a complementary behavioral source of the bullwhip effect that has been previously overlooked in the literature: that individuals order more aggressively (i.e., overreact) when they face shortages than when they hold inventory. Methodology/Results : We conduct a behavioral experiment using the beer distribution game. We estimate decision rules using multilevel modeling approaches that overcome several drawbacks of the estimation methods used in the earlier literature. We find robust evidence that, contrary to the overreaction when in backlog hypothesis and reports from popular press, decision makers order less aggressively and become insensitive to the scope of the problem when in backlog—a scope neglect phenomenon. Managerial implications : We propose a dual-process theoretical account predicated on affective reactions to explain this scope neglect. Our results suggest that affective reactions under novel operating conditions or dramatic events in supply chains, such as the COVID-19 pandemic, can overwhelm cognitive processing of managers and make them fail to recognize the full scope of the problems faced and update decision models accordingly. Understanding the cognitive-affective drivers of ordering behaviors that generate supply chain instability is important in designing interventions to mitigate their negative effects.

Keywords: behavioral operations; decision analysis; supply chain; experiments (search for similar items in EconPapers)
Date: 2022
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