Effects of regret in supply chain decisions: An experimental study

Official URL: https://risc01.sabanciuniv.edu/record=b2579570_(Table of contents)

In this thesis, effects of regret tendency on supply chain decisions are investigated. To this end, data from a previously conducted laboratory experiment where human subjects play the roles of manufacturer and retailer are used. The subjects make contracting and order quantity decisions under wholesale price, buyback and revenue sharing contract scenarios. Subjects are classified into high-regret and low-regret categories based on their responses to the questionnaire of Schwartz et al. (2002). We analyze the extent of the Pull-to-Center behavior in retailers’ order quantity decisions who face the newsvendor problem. We find high-regret retailers to be more prone to exhibit the preference to minimize ex-post inventory error and demand chasing heuristic under some of the contracts we study. In the wholesale price contract scenario, we observe high-regret manufacturers to offer more attractive contracts to the retailers compared to low-regret manufacturers. We also observe manufacturers to increase the retailer’s predicted profit and profit share in their contract offer following a contract rejection; however, this behavior does not depend on the level of regret tendency.