Designing Incentive Systems for Truthful Forecast Information Sharing

Abstract

Sales forecast accuracy has been a challenge to both research and practice for decades. In asymmetric information settings, not only the quality of a forecast but also the will to share it truthfully with another party becomes a relevant decision variable. Motivated by structurally biased sales forecasts in practice, we study a forecast sharing situation between a (better informed) sales and an operations department. Our objective is to incentivize truthful forecast reports by applying incentive schemes that penalize forecast errors. We propose a behavioral model based on theories of lying aversion, loss aversion and mental accounting and test alternative parameterizations of the model in a laboratory experiment. We find that human behavior deviates substantially from standard-theoretic predictions under rationality assumptions in the direction predicted by the behavioral model. We validate our findings in an out-of-sample experiment to show that incentive schemes designed with the behavioral model lead to more truthful sales forecasts than incentive schemes based on the standard model.

About the Presenter

Ulrich Thonemann is Professor for Supply Chain Management at the University of Cologne and Director of the Department of Supply Chain Management. He started his academic career as a Assistant Professor for Supply Chain Management at Stanford University and also holds Master and Ph.D. degrees from Stanford. Before joining academia, he worked as a management consultant at McKinsey & Company in Cologne.  His publications have appeared in journals such as Management Science, Operations Research, Harvard Business Manager and the European Journal of Operational Research. His current research focuses on Supply Chain Management, Service Management, and Behavioral Operations and on the application of state-of-the-art approaches in industry.

more information about Prof. Thonemann

About the Seminar

The KLU research seminar series is a regular meeting of PhD students, Post-Docs and professors who conduct research in the field of logistics and supply chain management. The research seminar is open to the public and we happily welcome guests.