Abstract:
This study reports the results of an experiment on the effect of incentives on the bullwhip effect, being conducted in the Beer Game. The bullwhip effect can be explained by the increase in magnitude of orders placed by one echelon to its direct upper supplier in a supply chain. We put prospect theory in practice, and expose our treatment group – consist of risk-averse participants – to the loss-of-rewards incentive framing. Our results show that risk-averse subjects cause a larger bullwhip effect on the supply chain. Further, comparison of three customer/supplier link in the Beer Game provides evidences that the upstream of the chain suffer the most in a chain consists of risk-averse decision-makers who are exposed to a loss-of-rewards incentive framing.
Research Topic: Supply Chain Dynamics
Key words: Supply Chain, Beer Game, Prospect Theory, Risk Aversion, Bullwhip Effect, Dynamic Decision Making
