Overconfidence in newsvendor orders: An experimental study

Research output: Contribution to journalArticlepeer-review

193 Scopus citations


Previous studies have shown that individuals make suboptimal decisions in a variety of supply chain and inventory settings. We hypothesize that one cause is that individuals are overconfident (in particular, overprecise) in their estimation of order variation. Previous work has shown theoretically that underestimating the variance of demand causes orders to deviate from optimal in predictable ways. We provide two experiments supporting this theoretical link. In the first, we elicit the precision of each individual's beliefs and demonstrate that overprecision significantly correlates with order bias. We find that overprecision explains almost one-third of the observed ordering mistakes and that the effect of overprecision is robust to learning and other dynamic considerations. In the second, we introduce a new technique to exogenously reduce overprecision. We find that participants randomly assigned to this treatment demonstrate less overprecision and less biased orders than do those in a control group.

Original languageEnglish (US)
Pages (from-to)2502-2517
Number of pages16
JournalManagement Science
Issue number11
StatePublished - Nov 2013


  • Behavioral operations management
  • Experiment
  • Newsvendor
  • Overconfidence
  • Overprecision


Dive into the research topics of 'Overconfidence in newsvendor orders: An experimental study'. Together they form a unique fingerprint.

Cite this