Learning From Crisis: Managerial Behavior After Repeated Supply and Demand Shocks

This paper explores human biases in operational decision-making under condi- tions of demand and supply uncertainties in form of shocks, focusing on the impact of inventory durability. Using an experimental game setup, the study investigates the prevalence of three key biases: pull-to-center, diversification, and bracing. Par- ticipants made inventory decisions in various scenarios involving demand shocks and supplier disruptions. The findings indicate that while the pull-to-center bias is not observed, both diversification and bracing biases persist when there are no shocks. Participants exhibited unnecessary diversification of suppliers and over- accumulation of inventory, particularly in response to supply disruptions. Notably, prior experience with disruptions did not mitigate these biases. The research sug- gests avenues for future exploration, including the interplay between different types of uncertainties and the potential impact of more extensive experimental designs.