Exploring Framing Effects in Inventory Control Decisions: Violations of Procedure Invariance

Abstract

Recent research on decision framing has shown that (i) there are multiple types of framing effects and (ii) the context of the decision can influence framing effects. This research examines decision framing effects in inventory control contexts by questioning the assumption of procedure invariance, that preference should not be impacted by how options are presented to a supply chain manager making an inventory control decision. Study 1 uses three single‐shot decision experiments to establish that all three types of framing effects identified by Levin et al. ( 1998 ) apply in basic inventory control contexts. Results were consistent with theory in all three cases. Given this evidence that framing effects have potential to impact inventory control decisions, two laboratory experiments in Study 2 utilize multi‐period decision tasks to demonstrate that framing effects can impact performance in a dynamic inventory decision setting similar to practice. One of the experiments in Study 2 was conducted with student subjects, while the other with inventory managers from a large retail firm. Results from both experiments provide evidence that even when initial framing effects on order quantities fade, there can be longer term effects on inventory levels and performance. Furthermore, these effects are robust to education and professional experience. The findings suggest that although a manager might select appropriate inventory control metrics, prudence must be exercised in the presentation of these metrics, and that mere presentation can be used to alleviate known human biases in inventory control decisions.