An Examination of Human Fast and Frugal Heuristic Decisions for Truckload Spot Pricing
<i>Background</i>: One of several logistics contexts in which pricing decisions are made involves truckload carriers using reverse auctions to bid for prices they want for their transportation services while operating under uncertainty about factors such as their (i) operations costs and...
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MDPI AG
2024-07-01
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| Series: | Logistics |
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| Online Access: | https://www.mdpi.com/2305-6290/8/3/72 |
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| author | Michael Haughton Alireza Amini |
| author_facet | Michael Haughton Alireza Amini |
| author_sort | Michael Haughton |
| collection | DOAJ |
| description | <i>Background</i>: One of several logistics contexts in which pricing decisions are made involves truckload carriers using reverse auctions to bid for prices they want for their transportation services while operating under uncertainty about factors such as their (i) operations costs and (ii) rivals’ bids. This study’s main purpose is to explore humans’ use of fast and frugal heuristics (FFHs) to navigate those uncertainties. In particular, the study clarifies the logic, theoretical underpinnings, and performance of human FFHs. <i>Methods</i>: The study uses behavior experiments as its core research method. <i>Results</i>: The study’s key findings are that humans use rational FFHs, yet, despite the rationality, human decisions yield average profits that are 35% below profits from price optimization models. The study also found that human FFHs yield very unstable outcomes: the FFH coefficient of variation in profit is twice as large as price optimization. Novel contributions inherent in these findings include (a) clarifying connections between spot market auction pricing and behavioral theories and (b) adding truckload spot markets to the literature’s contexts for measuring performance gaps between human FFHs and optimization models. <i>Conclusions</i>: The contributions have implications for practical purposes that include gauging spot pricing decisions made under constraints such as limited access to price optimization tools. |
| format | Article |
| id | doaj-art-b59ef9813a9b49d1aebe8edc9ee61dbd |
| institution | Kabale University |
| issn | 2305-6290 |
| language | English |
| publishDate | 2024-07-01 |
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| series | Logistics |
| spelling | doaj-art-b59ef9813a9b49d1aebe8edc9ee61dbd2025-08-20T03:58:50ZengMDPI AGLogistics2305-62902024-07-01837210.3390/logistics8030072An Examination of Human Fast and Frugal Heuristic Decisions for Truckload Spot PricingMichael Haughton0Alireza Amini1Lazaridis School of Business and Economics, Wilfrid Laurier University, Waterloo, ON N2L 3C5, CanadaLazaridis School of Business and Economics, Wilfrid Laurier University, Waterloo, ON N2L 3C5, Canada<i>Background</i>: One of several logistics contexts in which pricing decisions are made involves truckload carriers using reverse auctions to bid for prices they want for their transportation services while operating under uncertainty about factors such as their (i) operations costs and (ii) rivals’ bids. This study’s main purpose is to explore humans’ use of fast and frugal heuristics (FFHs) to navigate those uncertainties. In particular, the study clarifies the logic, theoretical underpinnings, and performance of human FFHs. <i>Methods</i>: The study uses behavior experiments as its core research method. <i>Results</i>: The study’s key findings are that humans use rational FFHs, yet, despite the rationality, human decisions yield average profits that are 35% below profits from price optimization models. The study also found that human FFHs yield very unstable outcomes: the FFH coefficient of variation in profit is twice as large as price optimization. Novel contributions inherent in these findings include (a) clarifying connections between spot market auction pricing and behavioral theories and (b) adding truckload spot markets to the literature’s contexts for measuring performance gaps between human FFHs and optimization models. <i>Conclusions</i>: The contributions have implications for practical purposes that include gauging spot pricing decisions made under constraints such as limited access to price optimization tools.https://www.mdpi.com/2305-6290/8/3/72spot markettruckload transportationpricing decisionsbehavior experimentsrisk aversion theoryregret theory |
| spellingShingle | Michael Haughton Alireza Amini An Examination of Human Fast and Frugal Heuristic Decisions for Truckload Spot Pricing Logistics spot market truckload transportation pricing decisions behavior experiments risk aversion theory regret theory |
| title | An Examination of Human Fast and Frugal Heuristic Decisions for Truckload Spot Pricing |
| title_full | An Examination of Human Fast and Frugal Heuristic Decisions for Truckload Spot Pricing |
| title_fullStr | An Examination of Human Fast and Frugal Heuristic Decisions for Truckload Spot Pricing |
| title_full_unstemmed | An Examination of Human Fast and Frugal Heuristic Decisions for Truckload Spot Pricing |
| title_short | An Examination of Human Fast and Frugal Heuristic Decisions for Truckload Spot Pricing |
| title_sort | examination of human fast and frugal heuristic decisions for truckload spot pricing |
| topic | spot market truckload transportation pricing decisions behavior experiments risk aversion theory regret theory |
| url | https://www.mdpi.com/2305-6290/8/3/72 |
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