Anatomy of a Newsvendor Decision: Observations from a Verbal Protocol Analysis

An exploratory analysis of verbal protocols from a think-aloud newsvendor experiment provided deeper insights into the decision-making process, enabling us to formulate a number of questions that are worth answering in future research. In a think-aloud experiment, subjects verbalize their cognitions while performing a task; responses are then recorded, transcribed, and analyzed. A majority of the subjects struggled with the abstractness of the business setting and were keen to know information on the product type, industry setting, decisions taken in the past, competitor's situation, etc. A large portion of the participants correctly identified the overage and underage costs, but failed to convert that information into the optimal order quantity. Finally, the bias in the order quantity was significantly influenced by the specific type of risk (overage or underage) that was identified closer to the decision, alluding to the presence of a recency effect. As a first application of verbal protocol analysis to inventory decision making, this study gives us an opportunity to highlight the strengths and weaknesses of this research methodology.