Cognitive stress and learning Economic Order Quantity (EOQ) inventory management: An experimental investigation

Pan, Jinrui and Shachat, Jason and Wei, Sijia (2018): Cognitive stress and learning Economic Order Quantity (EOQ) inventory management: An experimental investigation.

Abstract

We use laboratory experiments to evaluate the effects of cognitive stress on inventory management decisions in a finite horizon Economic Order Quantity (EOQ) model. We manipulate two sources of cognitive stress. First, we vary participants' ability to order inventory from any decision period to only when inventory is depleted. This reduces cognitive stress by restricting the policy choice set. Second we vary participants' participation in a competing pin memorization. This increases cognitive load. Participants complete a sequence of five ``annual'' inventory management tasks, with monthly ordering decisions. Both sources of cognitive stress negatively impact earnings, with the bulk of these impacts occurring in the first year. Participants' choices in all treatments exhibit trends to near optimal policy adoption. But only in the most favorable treatment do the majority of choices reach the optimal policy. We estimate the learning dynamics of monthly order decisions using a Markov switching model. Estimates suggest increased cognitive load reduces the probability of switching to more profitable policies, and that more complex policy choice sets leads to a greater policy lock-in. Our results suggests that inexperienced individuals will perform more poorly when called upon to make inventory management situations in cognitively stressfully environments, and that the benefits of providing support and task simplicity is greatest when the task is first assigned.

• Item Type: MPRA Paper
• Language: English
• Keywords: Economic Order Quantity, Cognitive load, Choice set complexity, Learning
• Subjects: C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C92 - Laboratory, Group Behavior; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search ; Learning ; Information and Knowledge ; Communication ; Belief ; Unawareness; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M1 - Business Administration > M11 - Production Management

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