Lecture notes
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Note: The notes of lecture 6 are very short
1JM40 Behavioral operations
management
Contents
Lecture 1................................................................................................................................................2
Introduction.......................................................................................................................................2
Research methods.............................................................................................................................3
Behavioural forecasting.....................................................................................................................3
Lecture 2 Inventory Control...................................................................................................................5
Schhweiter and cachon (2000): introduction.....................................................................................5
Risk preferences................................................................................................................................6
Utility function...............................................................................................................................6
Prospect theory.............................................................................................................................6
Ex-post inventory error..................................................................................................................6
Anchoring and insufficient adjustment..........................................................................................6
Conclusion.....................................................................................................................................6
Croson and Donohue (2016)..............................................................................................................6
Results...........................................................................................................................................7
Implications.......................................................................................................................................7
Lecture 3 Queueing...............................................................................................................................7
Lecture 4 Supply chain contracting........................................................................................................8
Types of contracts..............................................................................................................................8
Contracting models............................................................................................................................8
Katok and Wu (2009) - Contacting in supply chains: A laboratory Investigation................................9
Analytical model............................................................................................................................9
Experimental study........................................................................................................................9
Result.............................................................................................................................................9
Lecture 5 Algorithm aversion.................................................................................................................9
Lecture 6 Operational transparency....................................................................................................10
Lecture 7 The psychology of incentives...............................................................................................10
Lecture 8 Trust, trustworthiness, and cooperation..............................................................................11
, Lecture 1
Introduction
What is Operations Management?
OM is a field investigating the design, management, and improvement of processes aimed at the
development, production delivery and distribution of products and services.
- People are a critical component within the systems.
- Ignorance of human factor because of assumptions the fields holds regarding the
determinants of human behaviour, the nature of people (people are rational agents).
Rational agent: Agent who has clear and stable preferences. Prefer option A over B and B over C
than A should be preferred over C and it should be always. Who models uncertainty via expected
values and always chooses to perform the action with optimal expected outcome for itself from
among all feasible actions.
This view of human nature leads to following predictions:
- People are self-interested (and believe others are).
- People have stable preferences.
- People can distinguish signal from noise (respond to relevant information and are able to
discard irrelevant information).
- People’s decisions are unaffected by cognitive biases or emotions.
People aren’t always irrational, but the idea of people being always rational is not always true.
Understand when it is true and when it’s not.
Based on the idealized notion of human decision-makers, OM ignored the human factor when
designing, managing and improving operational processes.
Taylor was aware of people’s limitations. Assumptions where challenged by Simon (1956, 1957) and
Tversky and Kahnerman (1974) -> people are limited in the ability to process information.
BOM acknowledges people are guide by emotions, cognitive biases o
Study of Human behavior and their impact on design, management and improvement of processes
aimed at the development, production delivery and distribution of products and services.
OM and BOM have the same goal but different focus:
- BOM focusses on how cognitive and behavioural factors shape the way operational
processes work and perform -> understanding the role of human behaviour can help to
design processes that account for the behavioural tendencies of managers, workers, and
customers.
- How can we use the behavior, the predictable mistakes people make
- Describe – predict- utilize- improve
How do people behave
- Biases are systematic errors
- Heuristics are rules of thumbs
Anchoring and adjustment heuristic
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