2010 M&SOM Best Paper Award

It is a great pleasure to announce that the 2010 Manufacturing & Service Operations Management Best Paper Award goes to Xuanming Su for “Bounded Rationality in Newsvendor Models” (2008). This annual award is given to one paper, published in one of the prior three volumes of M&SOM. Nominees were first appraised by M&SOM associate editors to select a limited set of finalists. The finalists were further reviewed by an ad hoc committee comprised of Hyun-soo Ahn, Stephen Gilbert, and Jay Swaminathan. Tava Olsen, the immediate-past president of the MSOM Society, served as chair. This paper was chosen as most deserving for its contribution to the theory and practice of operations management. For his accomplishment, Professor Su receives $2,000, generously contributed by the MSOM Society of INFORMS. This paper seeks to provide a bounded rationality explanation for the observed gap in experimental studies between the theoretical optimal choice for newsvendor ordering (the traditional critical ratio) and participant decision makers’ actual choices. Embedding a logit choice model within the traditional newsvendor model framework, an analytic model is formulated and analyzed. This model is then validated using previous experimental lab results. This model is consistent with many of the findings of behavioral economics and, at the same time, analytically tractable. Logit choice models have been traditionally used to represent consumer heterogeneity in their decisions. In this paper they are instead used to represent bounded rationality in the decision process. Under this framework, all possible alternatives are candidates for selection but better decisions are made with higher probability. A parameter is given to quantify the level of bounded rationality where at its two extreme points the decision maker is either a perfectly rational decision maker or an irrational decision maker who just selects the order quantity randomly. This parameter is estimated empirically. The paper extends the framework to a number of classic supply chain problems (e.g., a simple contract problem, a serial supply chain) and attempts to support notable phenomena (such as the bullwhip effect) with bounded rationality. The committee in general liked the novelty of the perspective taken in the paper and the fact that the paper examines several different contexts (supply chain coordination, the bullwhip effect, inventory pooling) from this perspective. In the words of one reviewer, “This paper provided me with a lot of food for thought, and that is the main reason that it is my first choice for the best paper award.” Thus we are very pleased to present the 2010 M&SOM Best Paper Award to Professor Su.