Cognitive reflection and economic order quantity inventory management: An experimental investigation

Shachat, Jason and Pan, Jinrui and Wei, Sijia (2019): Cognitive reflection and economic order quantity inventory management: An experimental investigation.

Abstract

We use laboratory experiments to evaluate the effects of individuals' cognitive abilities on their behavior in a finite horizon Economic Order Quantity model. Participants' abilities to balance intuitive judgement with cognitive deliberations are measured by the Cognitive Reflection Test (CRT). Participants then complete a sequence of five “annual” inventory management tasks with monthly ordering decisions. Our results show that participants with higher CRT scores on average earn greater profit and choose more effective inventory management policies. However these gaps are transitory as participants with lower CRT scores exhibit faster learning. We also find a significant gender effect on CRT scores. This suggests hiring practices incorporating CRT type of instruments can lead to an unjustified bias.

• Item Type: MPRA Paper
• Language: English
• Keywords: inventory management; economic order quantity; cognitive reflection; Markov learning
• Subjects: C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C91 - Laboratory, Individual Behavior; D - Microeconomics > D9 - Intertemporal Choice > D92 - Intertemporal Firm Choice, Investment, Capacity, and Financing; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M1 - Business Administration > M11 - Production Management

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