Cross-cultural Differences in Laboratory Newsvendor Decisions

In this paper, we conduct a laboratory experiment using the classic newsvendor problem to study the role of culture in ordering patterns for both Chinese and American decision makers. Our main finding is that the "pull-to-center" effect is more salient for Chinese than Americans, i.e., average order quantities of Chinese subjects are closer to the mean demand than those of American subjects. More specifically, compared to their American counterparts, Chinese subjects tend to order significantly less for high-profit products and significantly more for low-profit products. A cross-cultural explanation is consistent with the observations, i.e., the Doctrine of the Mean, which is deeply embedded in Chinese culture, suggests that Chinese subjects are more likely to anchor on mean demand in newsvendor decisions than Americans. Some managerial insights are also provided for operational decisions of firms involved in global supply chains.