Examining the Effects of Near Miss Events in the Humanitarian Newsvendor Context

Abstract

We investigate a humanitarian newsvendor’s pre-positioning decisions in the context of near miss events where the event of interest is a near stock-outs. Results from a laboratory study show that near stock-outs that are not accompanied by salient warnings regarding the threat of a stock-out lead to normatively inappropriate decreases in pre-positioned stock, corresponding to an increase in risk-taking behavior in future decisions, adding a novel bias to the literature on newsvendor decisions. Moreover, initial increases in risk-taking following near stock-outs are strongest for decision makers with a predominant focus on avoiding excess inventory as opposed to preventing stock-outs. In the case of repeated experiences of near stock-outs, we witness decreases in risk taking behaviors for near stock-outs with salient cues of the potential danger involved, as well as for those decision makers who primarily focused on excess inventory. Our study provides clear implications for practice, where unwarranted inc...