How biases influence decision makers: a focus on the behavioural variability in the Newsvendor Problem

During the 20th century, in a framework of growing opposition between Neoclassical and Behavioural Economics, it has been scientifically demonstrated that individuals cannot be considered perfectly rational and therefore capable of maximizing their utility when making choices, as commonly argued until then. Rather, since the 1950s, various studies, in the context of Behavioural Economics, started showing that humans have inherent cognitive limitations that lead them to make systematically sub-optimal choices. Since then, research has gradually uncovered multiple factors that influence decision makers in their choices because of these limitations, but the field continues still to be in the process of being explored and needs for additional contributions. Indeed, some aspects of the topic seem to be currently uncovered. The present study thus aims at investigating specifically one of these elements on which a lack of contributions is nowadays evident: the behavioural variability of decision makers. To properly conduct this analysis, the Newsvendor Problem has been selected as the suitable tool, because of the many facets it has been proved to be able to investigate. As a matter of fact, the Newsvendor Problem reproduces a realistic decision making context, which can be easily linked to many daily activities actually carried out by individuals. Moreover, thanks to the versatility of the model, the behavioural variability was investigated in this work not only in the quantity purchased by the decision makers (i.e. the newsvendors), but also in their demand forecasting, costs incurred and deviation from optimal values (both in terms of costs and purchase quantity). Through the use of the Analysis of Variance (ANOVA), a data analysis was thus conducted to study how behavioural variability in the above mentioned elements is impacted by different factors, such as the experimental characteristics and the cognitive abilities. In particular, the results of the analysis showed how different combinations of these factors lead to diverse outcomes in the answering behaviour of the newsvendors, hence producing the investigated variability. Furthermore, the present paper also aims at contributing to the study of behavioural variability in decision making through the proposal of an experiment, which has been designed to investigate the topic from an innovative biometric perspective. In this regard, even though for the purpose of the present work the experiment has been conducted only in its pilot form, it is hoped that others will contribute to the research by going on in the data collection.