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Risk Aversion in The Supply Chain Evidence 2020 Journal of Purchasing and
Risk Aversion in The Supply Chain Evidence 2020 Journal of Purchasing and
Keywords: This study investigates the impact of individual risk aversion on replenishment decisions in a multi-echelon
Supply chain supply chain, and explores whether this impact is affected by experiential learning. The methodology applied is
Learning that of observational studies, while the multi-echelon supply chain is modeled through the classical Beer Game.
Risk aversion Participants in the study are purchasing and supply chain professionals. Results suggest that risk aversion leads
Beer game
to higher orders, Risk aversion persists even after experience of the game has been gained.
∗
Corresponding author.
E-mail address: cdimauro@unict.it (C. Di Mauro).
https://doi.org/10.1016/j.pursup.2020.100646
Received 28 June 2019; Received in revised form 9 June 2020; Accepted 29 June 2020
Available online 01 August 2020
1478-4092/ © 2020 Elsevier Ltd. All rights reserved.
C. Di Mauro, et al. Journal of Purchasing and Supply Management 26 (2020) 100646
have the opportunity to learn over time from the experience deriving certainty of getting 50 euro, the risk neutral would be indifferent, and
from their past decisions and from the behaviour of their customers and the risk loving would prefer the gamble.
suppliers (Yang et al., 2019). Although there is agreement that “ex Risk aversion seems to pre-dominate in most decisions and domains
periential learning” (Kolb et al., 2001) may influence risk taking be (Eckel et al., 2013; Guiso and Paiella, 2008; Koudstaal et., 2015; Rabin
haviour over time, there is currently no theoretical agreement on the and Thaler, 2001). Economics and Psychology have offered different
direction that this learning effect will take. On the one hand, the most explanations for the determinants of risk aversion. Orthodox economic
credited theory in psychology on learning in risky contexts predicts that theory posits that risk aversion stems from the maximization of a
experiential learning reduces the degree of individual risk taking concave utility-of-wealth function and uses this assumption ubiqui
(Denrell and March 2001). On the other, alternative views (Gigerenzer, tously in theoretical and empirical economic research (Pratt, 1964).
2002) posit that experience tends to make people more confident be Risk aversion is expected to increase with the value at stake and to be
cause they learn to “live with risk”. Therefore, even risk averse buyers higher for some socio-demographic categories, e.g. women (Eckel and
should become more willing to take risks over time, once they become Grossman, 2008). Alternative behavioural theories grounded in ex
more familiar with customers' and suppliers’ behaviour. perimental psychology have tried to explain risk aversion using two key
Understanding how the relation between risk aversion and risk concepts: loss aversion and myopia (Rabin and Thaler, 2001). For in
taking is modified by experiential learning is relevant for organizations. stance, Kahneman and Tversky's Prospect Theory (1979) uses the con
For instance, if learning increases risk taking, an organization seeking cept of “loss aversion” to explain aversion to risk. This model argues
to improve its working capital management through the reduction of that decision makers evaluate changes in their wealth with respect to a
inventory days-on-hand, will need to provide buyers with opportunities reference point. Changes perceived as losses are weighted roughly twice
for fast and effective learning. Conversely, if learning reduces risk as much as gains and this leads people to refuse even very small gam
taking, individual incentives and de-biasing strategies may be appro bles involving potential losses. A different standing is taken by “Mental
priate. accounting” models (Thaler, 1999), which posit that individuals cog
Lack of empirical evidence on these issues motivates the present nitively store and evaluate financial transactions into separate sections
study, which seeks to provide an answer to the following research and entails that risk aversion follows from the tendency to assess risks
questions: in isolation and therefore myopically, rather than considering the
broader financial exposure.
1 – What is the relation between the individual risk aversion of a
buyer and his degree of risk taking in replenishment decisions? 2.2. Learning and risk taking behaviour
2 – How does experiential learning impact on the degree of risk taking
in replenishment decisions? Cognitive learning theories define learning as a change in the state of
3 – Is the relation between the risk aversion attitude of the buyer and knowledge due to processing of information, implying that the extent of
risk taking in replenishment decisions modified by experiential individual learning largely depends on information availability, selection
learning? and elaboration (Kolb et al., 2001; Simon, 1972). In organizational set
tings, decision makers must often rely on personally developed experi
In order to answer these research questions, we undertake an ob ence as a source of learning. In particular, experiential learning is ex
servational study (Shadish et al., 2002) simulating the functioning of a pected to help managers learn ‘‘rules’’ for judgment (Kolb et al., 2001).
multi-echelon supply chain, in which the different echelons replenish The relation between risk taking behaviour and learning remains
their inventory by ordering a single purchased item. The supply chain is controversial. March (1996) showed that several standard learning
an appropriate setting for the study, because it allows analysing re models imply that in repeated choices (implying experiential learning)
plenishment decisions in the light of the expected behaviour of the up- the selection of riskier choices (risk taking) decreases as the decision
and down-stream members of the supply chain (Foerstl et al., 2017). maker gains experience of the task. In particular, March argues that the
The study contributes to research on behavioural factors in pur reduction of risk taking behaviour through experience will be both
chasing decisions in several respects. First, it provides novel evidence voluntary (the average choice reflects less risk taking) and involuntary
that higher individual risk aversion makes buyers “prudent”, in the (the variability around the average choice decreases).
sense that they avoid running out of stock by ordering more. Next, the Denrell (2007) and Denrell and March (2001) explain this result
study explores the role of experiential learning in moderating the re through the so called Hot Stove Effect, which builds on the asymmetric
lation between risk aversion and replenishment decisions. In particular, perception of bad outcomes (which are more salient) and of good out
the study suggests that risk averse behaviour is resilient to hands-on comes. Since risky choices are more likely to produce bad outcomes, the
experience of the decision task. hot stove hypothesis predicts an increasing adoption of choices consistent
The paper is organised as follows. Section 2 reviews the relevant lit with the avoidance of risk. Several researchers have experimentally re
erature, while Section 3 develops hypotheses. The study design is set forth plicated this finding (Busemeyer, 1985; Haruvy et al., 2001; Erev and
in Section 4. Section 5 reports results, followed by their discussion in Barron, 2005). However, counter views and evidence abound. For in
Section 6. Limitations and the future research agenda conclude the paper. stance, the escalating commitment model (Staw and Ross, 1987) is
consistent with the view that experience can foster risky behaviour over
2. Relevant literature background time. Gigerenzer (2002) argues that people “learn to live with risk” by
using heuristics rather than optimization models. Biele et al. (2009) find
2.1. Risk attitudes and risk taking behaviour that in dynamic settings the hot stove effect may be offset by a “recency”
effect, whereby recent good outcomes may increase the tendency to se
In risk averse individuals, the desire to avoid failure overrides the lect riskier options. In the same vein, Bradbury et al. (2014) show that
desire to achieve good outcomes, risk neutral individuals are indifferent investors shift to riskier financial products after gaining experience.
to risk and select the option with the highest expected value, whereas in
risk loving individuals the desire to achieve the best possible outcome 2.3. Purchasing decisions and risk attitudes
predominates over the fear of failure (Lopes, 1987). To clarify the
concept, consider an individual who is offered the choice between ac Although the empirical investigation of the impact of risk attitudes
cepting a gamble consisting in a gain of 100 euro if a coin lands head on purchasing related decisions represents a neglected topic, some in
and no gain if it lands tail, versus foregoing the gamble and getting 50 sights can be gained from human experiments that have studied re
euro for sure. The risk averse individual would always prefer the plenishment decisions within a supply chain. Some of these studies
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C. Di Mauro, et al. Journal of Purchasing and Supply Management 26 (2020) 100646
have briefly touched on the problem of risk attitudes and risk taking. setting in which the relation between risk aversion and risk taking be
Specifically, Narayanan and Moritz (2015) investigate the impact of haviour is analysed is a multi-period, multi-echelon supply chain. The
intuitive vs. analytical reasoning on order variability and, for one subset task of the buyer at each echelon is to order goods from a sole supplier
of the games, also measure risk attitudes using the scale proposed by with the aim to satisfy a variable demand. Similar to other analyses in the
Blais and Weber (2006). The risk attitude score is then matched with literature, the setting is further characterised by inventory holding costs
the order variability, showing no significant correlation, possibly on and by penalty costs for failing to meet the demand of the downstream
account of the small sample. Combining human experiments and agent- customer (backlog costs). The supply chain is uncoordinated, implying
based simulation, Cannella et al. (2019) find that risk aversion increases that no information is exchanged between supply chain echelons, except
average inventory holdings. Finally, though not using the concept of orders and goods being shipped (Sterman, 1989).
risk attitude explicitly, Croson et al. (2014) attribute instability of the In this setting, a low risk averse buyer will gamble on the infrequent
supply chain to uncertainty about the decisions of the other echelons of occurrence of backlogs and adopt a policy of low orders and inventory
the chain, which they refer to as “coordination risk”. They prove that holdings. This policy lowers (known) holding costs but exposes her to the
players use an additional “buffer” of stock to protect against co risk of failing to satisfy the customer if an unexpected variation in demand
ordination risk, a result that matches the finding that more risk averse occurs. Conversely, a high risk averse buyer will avoid gambling and will
individuals hold larger inventory (Cannella et al., 2019). prefer to incur known costs by ordering higher quantities and holding
larger inventory. Based on this line of reasoning, the higher the level of
2.4. Learning in purchasing and supply chains risk aversion of the decision maker, the higher the average order and
inventory holding. Therefore, we formulate the following proposition:
There has been limited research interest in the role of experience and
learning in purchasing decisions, with the notable exception of the work P1: Buyers with higher risk aversion will order on average higher volumes
by Kaufmann and colleagues. In particular, Kaufmann et al. (2014) find from suppliers.
that experience-based intuition and domain expertise are instrumental to
select suppliers that provide satisfactory cost and quality/delivery/in It should be acknowledged that this proposition is true if the
novativeness performance. Experience-based decisions are valuable backlog cost is higher than the holding cost. However, though this is not
especially for managers operating in stable environments, since they always the case, it holds true in many instances (Sterman, 1989).
need less to engage in information collection and processing in order to
make effective choices (Kaufmann et al., 2012). Research also suggests 3.2. Experiential learning and risk taking
that, even if purchasing experts are trained to carry out risk assessment
and to apply analytical models that support decisions, their expertise Through the processing of feedback information, hands-on experi
might also lead to over-optimistic feelings of control and therefore to ence provides buyers with the opportunity to learn how to approach risk
sub-optimal choices (Kaufmann et al., 2009). with the goal to improve performance. The Hot Stove Effect model
In supply chain research, learning is a recognized resource through suggests that experiential learning leads to reduced voluntary and in
which supply chains gain competitive edge. The literature has stressed voluntary risk taking (March, 1996; Denrell and March 2001). Extending
that learning within the supply chain has predominantly an inter-or the hot stove argument to a supply chain setting, risky replenishment
ganizational nature, and it is characterized by a high degree of com decisions are more likely to determine bad outcomes, i.e. backlogs and
plexity (Yang et al., 2019). Learning from the experiences of both disruptions of the supply chain. Since these negative events are generally
successes and failures (Sitkin and Pablo, 1992), supply chains become costly and likely to be sanctioned by companies, they are cognitively
able to better anticipate and satisfy customers' needs (Hult et al., 2002). more salient and will tend to be avoided in future decisions, leading to an
In summary, research from different disciplines suggests an impact increasing adoption of choices consistent with the avoidance of risk.
of risk aversion and of experiential learning on risk taking behaviour. Therefore, given P1, the Hot Stove Effect suggests a reduction in both
However, empirical evidence on the relations between these constructs voluntary and involuntary risk taking through an increase in the average
is still missing in the field of purchasing. The following section develops order, and a reduction in the variability of orders. Consistent with the
testable propositions to explore these relations, by using replenishment above line of reasoning, we formulate the following propositions:
decisions within a supply chain as a case example. Table 1 summarises
the meaning assigned to the concepts under study. P2a – Experiential learning increases average order quantities for each
echelon.
3. Proposition development P2b - Experiential learning reduces the variability of orders for each
echelon.
3.1. Risk aversion and risk taking in replenishment decisions
3.3. Experiential learning, risk aversion and risk taking behaviour
The degree of risk aversion is expected to affect risk taking behaviour,
i.e. the more a decision maker dislikes the challenge that risks entails, the How risk aversion, experience, and actual risk taking behaviour
less he is likely to undertake risky actions (Sitkin and Pablo, 1992). The interact is an open research question. The only contribution we are
Table 1
Definition of concepts investigated in the study.
Concept Definition
Replenishment decision (Sterman, 1989) Volume of goods ordered from a supplier with the aim to satisfy customer's demand
Risk aversion attitude (Pratt, 1964) A buyer's negative attitude towards risk, i.e. the willingness to reduce the cost variance by accepting an increase in the mean cost.
Risk taking behaviour (Sitkin and Pablo, 1992) Extent to which a buyer's orders aim at reducing redundant inventory at the risk of detrimental supply chain disruptions.
Voluntary risk taking (Denrell and March 2001) A lower average order reflects greater voluntary risk taking
Involuntary risk taking (Denrell and March 2001) A higher standard deviation around the average order reflects greater involuntary risk taking
Experiential learning (Sitkin and Pablo, 1992) The process of learning through the experience coming from past orders, past demand received and past inventory levels and stock-
outs.
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C. Di Mauro, et al. Journal of Purchasing and Supply Management 26 (2020) 100646
aware of is the one by Sitkin and Pablo (1992), who develop a con and Laury (2002) and the risk taking inventory by Blais and Weber
ceptual model of the link between risk attitudes and risk taking beha (2006). The former was discarded because a high rate of inconsistent
viour, which carves a possible role for experience. According to these responses was observed, while the latter because respondents objected
authors, the attitude-behaviour relation is moderated by risk percep that the items proposed touched on their private sphere of life and in
tions, which in turn depend on domain familiarity obtained through several cases refused to provide answers.
experience. In particular, experience is supposed to stabilize risk per The test chosen allowed sorting respondents into four distinct risk
ceptions vis à vis the acquisition of new information. To exemplify, in aversion categories (with 1 corresponding to the lowest risk aversion
the context of replenishment decisions, the inexperienced buyer will and 4 to the highest), depending on the answers to the two questions.
tend to have frequent variations of risk perceptions as she obtains new Respondents spread fairly equally between lower risk aversion scores (1
information, which will tend to blur the relation between her individual and 2 = 49.1%) and higher risk aversion scores (3 and 4 = 50.9%). No
risk attitude and the risk taking content of replenishment decisions. significant correlation was detected between the respondents’ risk
Conversely, the acquisition of experience, will lead to a stronger asso aversion and demographics, such as age, gender and years of work
ciation between risk aversion and risk taking behaviour. Therefore, we experience.
propose that:
4.2. The business game
P3 – The impact of risk aversion on risk taking behaviour will be
strengthened once buyers have gained experiential learning. In the second stage of the study, participants played the Beer Game
(Sterman, 1989), a business game widely adopted to study replenish
Fig. 1 summarises the propositions developed. ment decisions in the supply chain. The game was implemented
through an on-line software developed ad hoc using Java. The supply
4. Study design chain simulated in the study was made up of four echelons: factory,
distributor, wholesaler and retailer, totalling 28 supply chains. Each
In order to test the propositions developed in Section 3, a two-step echelon was played by a human participant, who was in contact only
procedure involving a questionnaire followed by a business game was with the closest downstream and upstream tiers. An external customer
used. Participants in our study were 112 purchasing and supply chain demand was generated by the software with demand parameters known
professionals from several countries, working for the same multi-na to all echelons (normal distribution with mean equal to 100, and
tional company in the automotive sector. Although the advantage of standard deviation equal to 20 units). However, the value of external
using professionals vs. students is debated (Croson and Donohue, 2006; demand in each period was observed only by the retailer.
Machuca and Barajas, 2004; Tokar et al., 2016), it is undeniable that a Each echelon's task was to satisfy demand coming from its down
professional has a better understanding and greater experience of the stream customer, by ordering enough beer from the echelon im
principles of replenishment than a student has (Tokar et al., 2012). mediately upstream. Inventory information was not shared across
Therefore, she should exhibit less unjustified optimism/pessimism echelons in order to mimic an uncoordinated supply chain. For the
about risk (Ancarani et al., 2016; Bolton et al., 2012), should be better same reason, communication among players was strictly forbidden
able to process information and benefit from learning and instructional during the game. As each echelon's warehouse had unlimited capacity,
training (Tokar et al., 2012), and embed the professional norms of stock-outs could occur either because the echelon in question had or
supply chain management. This latter aspect should give greater cred dered an insufficient quantity of beer or because the upper echelon (i.e.
ibility to the results of human experiments in the eyes of managers and the supplier) could not accommodate the order. Unlike the other
operations management practitioners. echelons, the factory had unlimited access to raw materials. Unit costs
All participants had at least five years of experience in purchasing, were the standard values used in beer game experiments, namely each
73 percent were male, 71 percent were under 40 years old, 70 percent unit placed in inventory had a cost of 0.5 euro per period, whereas
had a bachelor or higher education degree, about 60 percent had a failure to meet demand had a cost of 1 euro per period (backlogs cost)
degree in business disciplines or engineering. (Sterman, 1989).
Each order sent upstream had a constant information lag equal to
4.1. Measuring risk attitudes one period, accounting for supplier's order processing time. In this
study, the supply chain was also characterised by uncertainty in supply
In the first step of the study, participants were required to answer a by assuming that transportation time from the supplier to the buyer was
short test made up of two correlated questions meant to measure the stochastic and uniformly distributed in the interval (1, 2, 3) periods
individual degree of risk aversion (Barsky et al., 1997) (reported in the (Ancarani et al., 2013). Combining demand and supply uncertainty
appendix to the main text). The test is grounded in utility theory and is makes the perception of risk more salient and enhances the potential
similar to other hypothetical choice dilemmas that have been used in effects of risk aversion. At the same time, this volatile environment
order to measure risk propensities/attitudes (MacCrimmon and created within the beer game presents relevant similarities with the
Wehrung, 1990). context of the automotive industry, in terms of demand dynamics and
After considerable piloting, the two questions were framed in terms inability of some suppliers to have reliable delivery times, especially
of a supplier selection problem, in order to avoid the problem of per with oscillating customer demand. Therefore, participants in the busi
ceived irrelevancy. Piloting also led the authors to prefer this test over ness game had a perception of relevancy of the simulation environment
other well-known measurement tools, such as the lottery test by Holt created, as was confirmed in personal communication to the authors
after the conclusion of the game.
In each period of the game, each echelon placed an order to the
supplier. The length of the game was randomly determined in order to
avoid end-of-game effects (between 30 and 40 periods). All sessions
used the same realizations of demand and of lead times, in order to
isolate variations due to ordering behaviour from variations due to
different sequences of demand and lead times (Croson and Donohue,
2003). Inventory holdings in the first period of the game were in
itialized to 300 pieces leaving players to adjust them to the desired
Fig. 1. Testable propositions developed. level. Instructions were provided in the form of a power point
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C. Di Mauro, et al. Journal of Purchasing and Supply Management 26 (2020) 100646
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C. Di Mauro, et al.
Table 2
Panel model regression.
Retailer Retailer Wholesaler Model 1 Wholesaler Distributor Model 1 Distributor Factory Factory
Model 1 Model 2 Model 2 Model 2 Model 1 Model 2
G1 G2 G1 G2 G1 G2 G1 G2 G1 G2 G1 G2 G1 G2 G1 G2
Demand 0.60 0.10 0.60 0.12 0.77 0.48 0.80 0.49 0.78 0.03 0.79 0.03 0.71 0.37 0.72 0.38
(0.07) (0.08) (0.07) (0.09) 0.08 (0.1) (0.08) (0.1) (0.03) (0.02) (0.03) (0.02) (0.03) (0.03) (0.03) (0.04)
*** *** *** *** *** *** *** *** *** *** *** *** ***
Inventor −0.07 −0.17 −0.07 −0.17 −0.01 −0.27 −0.01 −0.27 −0.09 −0.09 −0.09 −0.09 −0.03 −0.07 −0.03 −0.07
(0.01) (0.01) (0.01) (0.02) (0.00) (0.04) (0.00) (0.04) (0.02) (0.01) (0.02) (0.01) (0.01) (0.01) (0.01) (0.01)
*** *** *** *** *** *** *** *** *** *** *** *** *** *** *** ***
Backlogs −0.05 −0.05 −0.05 −0.05 0.66 0.13 0.69 0.12 0.18 0.2 0.19 0.18 0.07 0.23 0.11 0.23
(0.10) (0.03) (0.11) (0.03) (0.07) (0.07) (0.07) (0.07) (0.03) (0.02) (0.04) (0.02) (0.05) (0.04) (0.05) (0.04)
*** *** *** *** *** *** *** ** ***
Order(t-1) 0.18 0.17 0.19 0.17 0.5 −0.02 0.51 −0.01 −0.22 0.24 −0.22 0.24 0.11 0.27 0.11 0.28
(0.03) (0.03) (0.03) 0.03 0.02 0.02 0.02 0.02 0.03 0.03 0.03 0.03 0.02 0.02 0.02 0.02
*** *** *** *** *** *** *** *** *** *** *** *** *** ***
Order(t-2) 0.05 0.13 0.06 0.13 0.47 0.01 0.47 0.02 −0.01 0.21 −0.01 0.21 −0.07 −0.06 −0.08 −0.06
6
0.03 0.03 0.03 0.03 0.03 0.02 0.03 0.02 0.02 0.03 0.02 0.03 0.02 0.02 0.02 0.02
** *** ** *** *** *** *** *** *** *** *** **
Order(t-3) −0.12 0.01 −0.13 0.01 −0.22 0.01 −0.22 0.01 −0.15 −0.02 −0.15 −0.03 0.23 0.09 0.24 0.09
0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.02 0.03 0.02 0.03
*** *** *** *** *** *** *** *** *** ***
Order(t-4) 0.10 0.06 0.11 0.06 −0.11 −0.04 −0.11 −0.04 0.05 −0.07 0.05 −0.08 0.09 −0.02 0.09 −0.03
0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.02 0.03 0.02 0.03
*** ** *** ** *** *** *** *** *** ***
Risk Aversion 20.22 24.30 45.81 33.51 16.03 54.8 52.19 49.24 44.28 31.43 65.95 −12.09 63.21 40.47 158.95 50.82
5.05 4.72 21.51 11.08 19.1 12.3 45.29 26.22 16.04 4.94 45.53 12.75 26.52 5.95 106.38 13.51
*** *** ** *** *** ** *** *** *** *** ***
Risk Aversion* 0.09 0.04 0.09 0.04 −0.29 −0.02 −0.30 −0.02 −0.03 −0.05 −0.03 −0.04 0.04 −0.03 0.02 −0.03
Backlog 0.04 0.01 0.04 0.01 0.03 0.03 0.03 0.03 0.007 0.007 0.008 0.007 0.02 0.01 0.02 0.01
** *** ** *** *** *** *** *** *** *** *** ***
On the other hand, we do not find evidence supporting P2a and the aversion following experiential learning, consistent with P3.
“Hot stove effect” prediction that experience decreases voluntary risk Table 4 further shows a paired comparison of mean and standard
taking behaviour by increasing orders. In fact, Table 3 shows that mean deviation of orders between G1 and G2, separating players by degree of
orders in G2 decrease with respect to G1, except for the Retailer. The risk aversion (high and low). Players’ mean orders appear to react to
same reduction is observed for the average inventory in three of the experience in the same fashion, regardless of risk aversion level.
echelons. This result also aligns with the finding that players become However, the t-test highlights that high risk averse players do not al
more reactive to increases in inventory holdings in G2 with respect to ways significantly modify the standard deviation of orders after gaining
G1, as shown by the inventory coefficients in the regression model in experience of the game, whereas the adjustment of low risk averse
Table 2. In spite of lower orders and inventory, G2 is also characterised players is always statistically significant. Overall, these results suggest
by statistically lower backlogs, a result that can be attributed to the that experiential learning affects risk taking in different fashions ac
lower variability of orders. cording to the risk aversion of the buyer.
In order to supplement the analysis of the interactions between risk
aversion, learning, and risk taking, useful insights can be obtained by
5.3. The impact of experiential learning on the relation between risk
exploring supply chain operational performance and service level in the
aversion and risk taking behaviour
different configurations. Because different chains exhibited different
combinations of high/low risk averse players, we calculated the
With the aim to verify whether the relation between individual risk
average risk aversion of the chain as the average score of the players in
aversion and orders is fostered by experience (P3), we first compare the
the same chain. A high risk aversion chain was defined as having an
statistical significance of the risk aversion coefficient in the two equa
average risk aversion score equal or greater than 2.5. A matched t-pair
tions corresponding to G1 and G2. The comparison shows that risk
comparison of the distribution of period costs between G1 and G2
aversion is more often statistically significant in G2 than in G1. This
shows that low risk averse chains reduce their costs in G2 with respect
finding is consistent with the fact that in G1, inexperience of the game
to G1 (p < 0.0022), while the costs of high risk averse chains increase
leads to continuous adjustments in risk perception (an unobserved
in G2 (p < 0.0003) with respect to G1. The service level was measured
variable in our model) that end up modifying the relation between risk
through the fill rate, i.e. the ratio of goods shipped by the retailer to
aversion and orders. In the second repetition of the game, players have
external customer demand received (Chen et al., 2000). In G2, the
gained domain experience through hands-on learning. This experience
median fill rate was exactly the same for high and low risk aversion
stabilizes risk perception along the game and allows the relation be
chains (0.97). Overall, these results suggest that learning improves
tween risk aversion and orders to emerge in a clearer fashion. As a
operational performance for low risk averse chains but not for high risk
result, the relation is statistically significant in a higher number of in
averse ones.
stances in G2 than in G1. This suggests an enhanced effect of risk
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C. Di Mauro, et al. Journal of Purchasing and Supply Management 26 (2020) 100646
Table 4
Paired comparison of risk taking in G1 vs. G2 (by period).
Standard Deviation of orders Orders
Mean difference G1-G2 t Sig. (2-tail) Mean difference G1-G2 t Sig. (2-tail)
Retailer Low Risk Averse −148.44 −6.62 0.00 −77.07 −6.60 0.00
Wholesaler Low Risk Averse 281.78 4.60 0.00 92.30 4.79 0.00
Distributor Low Risk Averse 115.41 4.00 0.00 51.93 3.90 0.00
Factory Low Risk Averse 466.78 4.15 0.00 136.56 4.78 0.00
Retailer High Risk Averse −31.93 −1.59 0.13 −76.59 −4.00 0.00
Wholesaler High Risk Averse 23.63 2.03 0.05 22.78 3.04 0.01
Distributor High Risk Averse 323.96 3.48 0.00 109.26 3.53 0.00
Factory High Risk Averse 152.67 1.83 0.08 60.78 1.99 0.06
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