Abstract for: Intelligence and (Mis)Understanding of Accumulation as Explaining Factors of Stock Management Failures

The dynamic stock management (SM) problem is highly relevant for a broad range of decision makers in various domains. Although sophisticated management concepts have been developed in some areas, human SM performance is poor. Psychological research provides evidence on intelligence being an important predictor for SM performance. Another explanation for this failure is offered by a stream of research, which finds evidence for widespread and persistent deficits in understanding how flows accumulate in stocks. This study uses data from laboratory experiments to explicitly test the relations between understanding of accumulation (UoA), intelligence and SM performance. We find support for a strong (direct plus indirect) impact of intelligence on SM performance while the influence of UoA is slightly weaker. Results are robust independent from a stochastic or deterministic demand environment. However, with an adjusted R-square of .171, there have to other more relevant variables to explain stock management performance. Thus, our results indicate that the effect of UoA on management performance is overstated in prior literature on stock/flow-failure. Practical implications are that companies should focus their efforts relatively more on selecting intelligent personnel instead of investing too many resources in training endeavours.