Learning under the Inventory Problem of Economic Order Quantity : A Behavioral Study

Inventory management relies on the economic order quantity (EOQ) and newsvendor models. While the newsvendor model has received much attention in the field of behavioral operations management (BOM), the EOQ problem remains largely untouched. This study presents one of the first empirical examinations of inventory decisions under the deterministic EOQ model. The experiments analyze learning behaviors in response to stationary and non-stationary parametric environments. Results show that participants are less likely to repeat suboptimal decisions when parameters remain static. When confronted with cost parameter shocks, most players can improve decisions over time and benefit from past experiences. Two behavioral models, a modified experience-weighted-attraction (EWA) model and an exploratory behavior-based error reduction model (ERM), are developed to analyze the decision-making process. These models reveal the impact of different behavioral traits on learning under EOQ. Additional experiments are conducted to improve empirical performance