Mark Cotteleer, Maria Ibanez, Geri Gibbons

Research in behavioral economics and behavioral operations offers ample evidence that humans frequently make poor choices in the face of uncertainty. Whereas classic economic theory suggests individuals make decisions under risk by calculating an “expected value” (that is, the average value or “utility” of all the possible outcomes weighted by their probabilities), extensive analysis of actual behavior shows systematic violation of this rule and suggests … [ Read more ]

The Answer Is 9,142: Understanding the Influence of Disruption Risk on Inventory Decision Making

The question was how many units of inventory a manager should order when faced with a possible disruption in supply. The correct answer is not guesswork, but based on 150 years of theory and practice. We examine individual choices made in this critical situation—and the results are not encouraging.