Abstract for: “I’m not hoarding, I’m just stocking up before the hoarders get here.” Behavioral causes of phantom ordering in supply chains
Individuals often respond to product shortages by building safety stocks (hoarding) or ordering more than needed to meet demand (phantom ordering). Such actions create positive feedbacks that intensify scarcity. Hoarding and phantom ordering can be rational when customers compete with others for limited supplies. But they may also be behavioral and emotional responses to scarcity. To address this question we extend Croson et al.’s (2013) Beer Distribution Game experiment. There, hoarding and phantom ordering are never rational because there is no horizontal competition, randomness, or capacity constraint; further, customer demand is constant and known to all. Nevertheless 22% order more than 25 times the constant demand. We generalize the ordering heuristic tested in prior research to include the possibility of endogenous hoarding and phantom ordering. Estimation results strongly support the behavioral hypothesis, with hoarding and phantom ordering particularly strong for the outliers who placed large orders. We discuss psychiatric and neuroanatomical evidence showing that environmental stressors can trigger the impulse to hoard. We speculate that stressors such as large orders or late deliveries trigger hoarding and phantom ordering for some participants even though these behaviors are irrational. We discuss implications for supply chain design and behavioral operations research.