Revisiting the Causes of the Pull-to-Centre Effect: Evidence From China.

Lushuang Yang,Dahai Cai

doi:10.3389/fpsyg.2021.754626

Abstract

Prior experimental studies have shown that individuals' actual ordering decisions significantly deviate from the theoretical optimum in newsvendor problems and show the robust pull-to-centre (PTC) effect. Several human behaviours have been confirmed to be the causes of the PTC. However, most newsvendor experiments have been conducted in multicultural countries (e.g., the United States and Germany). As there exist mutual influences between culture and behaviour, in this study, we revisit the ordering biases in a monocultural country to examine the robustness of the PTC and whether the causes can still explain this phenomenon. Our results show that the PTC still prevails and heuristics still work. However, overconfidence cannot perfectly interpret the PTC in China for probable inconsistent confidence levels in individual judgments and decisions. Moreover, the “centre" may no longer be the mean demand but the average value of the realised demand. We explain these changes from the perspective of cultural differences. To be more specific, collectivism, holistic style, and Doctrine of the Mean play vital roles in Chinese newsvendors' decisions.

Highlights

AND HYPOTHESES FORMULATIONThe premise of the classic newsvendor model is that decision makers are fully rational and pursue profit maximisation
While the mean anchoring behaviour assumes that decision maker anchors on the mean demand and adjusts towards the optimal order quantity, the demand chasing behaviour assumes that people anchor on the previous order quantity and adjust it towards prior demand realisation (Schweitzer and Cachon, 2000)
We present the general results of our experiment as well as revisions to heuristics and the overconfidence effect

Summary

Introduction

AND HYPOTHESES FORMULATIONThe premise of the classic newsvendor model is that decision makers are fully rational and pursue profit maximisation. Since the pull-to-centre (PTC) effect, that is “subjects order a quantity between the mean of the demand distribution and the expected profit-maximising quantity in the newsvendor setting,” was observed by Schweitzer and Cachon (2000), numerous studies have examined the robustness of this effect and found that the power of the PTC effect is dissimilar. Ren and Croson (2013) explored the impact of overconfidence on the newsvendor’s decision In their setting, people underestimated the variance of the demand distribution and that leads to the PTC effect. While the mean anchoring behaviour assumes that decision maker anchors on the mean demand and adjusts towards the optimal order quantity, the demand chasing behaviour assumes that people anchor on the previous order quantity and adjust it towards prior demand realisation (Schweitzer and Cachon, 2000)

Results

Discussion

Conclusion