Behavioral experiments on supply chain contracting

Official URL: http://risc01.sabanciuniv.edu/record=b1640298 (Table of Contents)

Each firm within a supply chain aims to maximize its own profit and unless the incentives of these firms are aligned through an efficient contract, individual profit maximization results in suboptimal performance for the supply chain. Researchers have developed a large number contracting models in order to coordinate the decisions of supply chain members through an appropriate allocation of profit and risk. The shortcoming of these models is that they presume decision makers are rational and self-interested profit maximizers. An extensive literature of experimental studies with human subjects reveal that decision makers do not conform to such standard theoretical expectations. In this dissertation, we conduct and report the findings of decision-making experiments with human subjects in a supply chain setting. We investigate the effects of contract type, power of commitment and fairness priming on contracting decisions in a one-manufacturer-one-retailer scenario, where individual decision biases as well as strategic interaction affect subject behavior. We find significant deviations in subject decisions from theoretical predictions. We develop analytical models to incorporate the behavioral factors that cause these deviations. In another experimental work, we study gender differences in newsvendor decisions. Finally, we investigate the relation between contracting decisions and various personality traits.