price, and inventory decisions Behavioral multi-lever decision-making: A study of consumer return policy

AbstractConsumer return policies have been long recognized and studied by operations management scholars as an important managerial lever in a retail environment. Yet, the behavioral aspects of return policy decisionmaking and interaction of return policy decisions with other common operational decisions have not been investigated to date. We present a behavioral analysis of return policy decisionmaking in a retail environment with aggregate demand and individual product valuation uncertainties. Leveraging a generalized newsvendor context, we conduct a randomized behavioral experiment to understand how individuals make each of the three key retail decisionsrefund amount, price, and order quantityand the causal effect of salvage value on these decisions. We find that decisionmakers exhibit behavioral regularities in making decisions across the three levers and they react to changes in the operating conditions in a boundedly rational manner, suggesting the use of heuristics. Based on behavioral regularities that we observe in our datathat is, responses, timedependent effects, and decision dependencieswe develop a process theory based on behavioral decisionmaking tenets that offers a new direction with testable hypotheses for future research. The process theory describes a conditional decisionmaking heuristic that leads to a propagation of decision errors across different levers as well as leverspecific decision biases.

Behavioral multi-lever decision-making: A study of consumer return policy, price, and inventory decisions Academic Article