The Importance of Being Confident: Evidence from a Supply Chain Experiment

Using a supply chain experiment, this study investigates how individual self-confidence affects inventory management decisions. An empirical model of order quantity determination shows that high-confidence players do not keep current demand into account but prefer to work on a target stock. On the contrary, low-confidence players choose the order quantity by following observed demand closely, resulting in lower supply chain costs but also in lower service levels for the customer. Results have useful managerial implications. First, they imply that the self-confidence of the inventory manager is important in affecting the trade-off between guaranteeing the smooth flow of goods across the supply chain and cost containment. Second, by showing that self-confidence is a good proxy of chain performance, results suggest that its measurement may be useful to inform staffing decisions.