Behavioral operation management

What is it about?

Overconfidence is a universal and prevalent cognitive bias affecting decision making in operation management. We build the demand function based on the manufacturer’s overconfidence and establish a newsboy-based model, and discusse the influence of overconfidence on product greenness, output, and profit.

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Why is it important?

We have severalnewsights as follows. First,overconfidencemakes themanufacturerproduce greener products than the rational manufacturer, and overestimation results in a higher greenness deviation than overprecision. Second, the influence of overconfidence on the output of green products is quite different from that of nongreen products. Specifically speaking, overestimation makes the manufacturer produce more products than the rational manufacturer, so do the overprecision manufacturer and the dual-overconfident manufacturer under the low-profit condition. But in high-profit condition, when greening investment factor is low and (or) consumers are sensitive enough to greenness, the overprecision manufacturer produces more than the rational manufacturer; when the level of overestimation exceeds a threshold, output of the dual-overconfident is greater than that of the rationalmanufacturer.Third, overconfidencemakes the real profit of themanufacturer less than optimal profit of the rationalmanufacturer.There is a positive cross-effect of overprecision and overestimation in real profit of the dual-overconfident manufacturer.

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