183 / 2024-04-22 20:32:44

Forecasting Bias to Decision Bias: New Explanation of PTC Effect via Control Illusion

Forecasting bias; PTC effect; Control Illusion; Newsvendor problem; Behavioral experiments

The pull-to-center (PTC) effect refers to newsvendors' behavior of under-/overordering in high-/low-profit conditions. Exploring the reasons for the PTC effect can help improve decision-making performance. While most of the current literature assumes that the decision-makers either entirely disregard or blindly rely on the given demand distribution information, this paper seeks to explore how decision-makers actually process such information. Building upon the illusion of control bias, we introduce a novel behavioral model that integrates both the demand forecasting and the decision processes to explain the PTC effect. By drawing upon multiple sets of experimental data, this paper validates the explanatory capacity of the proposed behavioral model.