Working Papers
Team Decision Making in Operations Management
(with Jiawei Li and Damian Beil) (2018)
Abstract: The existing behavioral OM literature has primarily studied individual decision makers. However, the behavioral economics literature suggests that, compared to individuals, teams may make better decisions in tactical settings and may be more strategic and self-interested. To study the behavior of teams making operational decisions, we study two canonical settings: standalone Newsvendor inventory decisions (tactical decisionmaking) and Newsvendor under information sharing (strategic decision-making). We find that teams perform worse than individuals when making Newsvendor decisions, and exhibit a stronger pull-to-center bias. In the information sharing setting, team retailers are less trustworthy while team suppliers are just as trusting as individual suppliers. We provide evidence for a team-decision making framework that can organize these findings. To do so we leverage a novel aspect of our experiment: subject teams can text chat to facilitate decision making, and by analyzing team chats, we are able to explore the drivers of operational decisions in our setting. We also test various existing behavioral theories of Newsvendor decision making using our data, finding support for a modified version of mean anchoring and adjustment.
Promise-keeping Norms and Renegotiation Behavior
(with Erin Krupka and Ming Jiang) (2017)
Abstract: The desire to uphold promise-keeping norms greases the wheels of interaction by creating trust. Norms establish a set of mutual expectations which parties rely on to interact in the presence of uncertainty and renegotiation. We present a model of social norm compliance in a risky trust game. We establish a set of assumptions about the norm that characterize how promises affect the norm to fulfill an agreement, how the norm is changed once unforseen contingencies are resolved and is changed if a renegotiation request is accepted or rejected. Using these assumptions, the model makes predictions about behavior patterns in the risky trust game. We conduct an experiment to test predictions both of the behavioral patterns and the assumptions of the model. We show that behavior is consistent with the norms model and that our assumptions about the norms are supported. Using this model, we explain why most subjects make promises, why promises are largely fulfilled even when it is costly, how reneogtiation success or failure affects the propensity to fulfill the promise and why nearly half of subjects do not request costless renegotiation even if it is available. This work sheds light on the impact of norms to influence renegotiation and extends the promise-keeping literature. For policies written against the backdrop of strong norms, we address implications and guidelines.
The Informational and Incentive Effects of Supplier Awards
(with Ruth Beer and Hyun-Soo Ahn) (2017)
Abstract: Many firms recognize exceptional supplier performance by giving out a ``Supplier of the Year'' or ``Outstanding Supplier'' award. These awards are usually symbolic since they have no immediate monetary value for a supplier and no direct cost to a buyer. Giving these awards can be beneficial for a buyer: if the employees working for a supplier care about being rewarded, symbolic awards can incentivize a supplier to exert higher effort. On the other hand, in a market with multiple buyers and suppliers, an award may have another effect, which we denote ``competition effect''. When an award is announced to other buyers indicating that a particular supplier is good, this can intensify a competition to do business with a good supplier. We develop a theoretical model that captures a supplier's value for the award in a setting with two buyers and two suppliers. We show that the average provision of quality is higher when awards are available whether these are private (only observable to the recipient) or public (observable to everyone). In addition, public awards result in buyers paying a higher price to get a good supplier. We then test these results with a laboratory experiment. Our experimental results show that private symbolic awards have incentive effects and lead to higher provision of quality and higher buyer's profits. When the awards are public this profit premium disappears. This happens for two reasons, first because buyers have to pay higher prices to get the good suppliers, and second because making the award public crowds out the intrinsic value of the award for suppliers. We also find that significant efficiency gains occur only when the award is private and the quality is public. This suggests that symbolic awards provide a noisy signal of a supplier's type and therefore fail to capture the full efficiency gain of transparent transactions.
The Impact of Decision Rights and Long Term Relationships on Innovation Sharing
(with Ruth Beer and Hyun-Soo Ahn) (2017)
Abstract: While innovation sharing between a buyer and a supplier can increase the efficiency and total profit of a supply chain, many suppliers are reluctant to do so. Sharing innovations leaves the supplier in a vulnerable position if the buyer exploits the information (e.g. by re-sharing the supplier's innovation with competing suppliers). In this paper, we examine conditions under which a collaborative relationship can arise in this situation, with a supplier voluntarily sharing an innovation and a buyer repaying that trust by sharing the surplus increase rather than seeking competing bids from other suppliers. First we show, both theoretically and experimentally, that decisions to collaborate are affected by the length of the relationship between the firms - longer relationships lead to higher collaboration and higher total profits. We additionally show that collaboration depends not just on the firm-level relationship length, but also on the long- or short-run focus of the employees within the firms that make decisions. We model the buyer as a dual decision maker, with long-run and/or short-run focused employees (``engineers'' and ``procurement managers'') determining the buyer's actions. We characterize the equilibrium of this model and show that collaborative outcomes depend on the level of control the long-run employee has within the buyer. Our experimental results verify this intuition. Collaborative relationships occur more often when the engineer has more control. However, the supplier's decision to share an innovation depends primarily on the firm-level relationship length, while the buyer's decision to seek competition depends more on the relationship focus of the controlling employees. Consequently, buyers' profits increase with long-run firm relationships (for any decision maker), while suppliers' profits only significantly increase with a long-run decision maker. Finally, while suppliers and engineers should theoretically ignore the actions of the previous procurement managers, we find that both suppliers' and engineers' actions are correlated with the previous procurement managers' decision.
Other Papers
Gift Exchange in the Lab - It is not (only) how much you give...
(with Florian Englmaier) (2012)
Managerial Payoff and Gift Exchange in the Field
(with Florian Englmaier) (2012)
Does Experience Always Pay? Welfare and Distribution Effects in Games with Heterogeneously Experienced Players
(with Robert Slonim) 2006