“I’m not hoarding, I’m just stocking up before the hoarders get here.”
Behavioral causes of phantom ordering in supply chains
John D. Sterman
When suppliers are unable to fill orders, delivery delays increase and customers receive less than they desire. Customers often respond by seeking larger safety stocks (hoarding) and by ordering more than they need to meet demand (phantom ordering). Such actions cause still longer delivery times, creating positive feedbacks that intensify scarcity and destabilize supply chains. Hoarding and phantom ordering can be rational when customers compete for limited supply in the presence of uncertainty or capacity constraints. But they may also be behavioral and emotional responses to scarcity. To address this question we extend Croson et al.’s (2014) experimental study with the Beer Distribution Game. Hoarding and phantom ordering are never rational in the experiment because there is no horizontal competition, randomness, or capacity constraint; further, customer demand is constant and participants have common knowledge of that fact. Nevertheless 22% of participants place orders more than 25 times greater than the known, constant demand. We generalize the ordering heuristic used in prior research to include the possibility of endogenous hoarding and phantom ordering. Estimation results strongly support the hypothesis, with hoarding and phantom ordering particularly strong for the outliers who placed extremely large orders. We discuss psychiatric and neuroanatomical evidence showing that environmental stressors can trigger the impulse to hoard, overwhelming rational decision‐making. We speculate that stressors such as large orders, backlogs 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.
ECDC and WHO debate weighty policy questions of the day … containment or mitigation?
CDC, not so much.
FWIW I think the ECDC/WHO disagreement is less than it seems. ECDC is really saying that behavior change has to do the heavy lifting from here out, not that containment should be abandoned altogether.
Not quite the good the bad and the ugly, but these are interesting for their contrasts:
The Word from Wuhan
Wang Xiuying – London Review
Inside China’s All-Out War on the Coronavirus
NYT interview with Bruce Aylward, WHO
Personal Essay: Coronavirus Lockdown Is A ‘Living Hell’
Anonymous – NPR
The System Dynamics Society curated collection of JWF writings on social dynamics is now online (free!):
In System Dynamics we typically refer to this as the eroding goals archetype, or the boiled frog syndrome:
With ongoing environmental degradation at local, regional, and global scales, people’s accepted thresholds for environmental conditions are continually being lowered. In the absence of past information or experience with historical conditions, members of each new generation accept the situation in which they were raised as being normal. This psychological and sociological phenomenon is termed shifting baseline syndrome (SBS), which is increasingly recognized as one of the fundamental obstacles to addressing a wide range of today’s global environmental issues. Yet our understanding of this phenomenon remains incomplete. We provide an overview of the nature and extent of SBS and propose a conceptual framework for understanding its causes, consequences, and implications. We suggest that there are several self‐reinforcing feedback loops that allow the consequences of SBS to further accelerate SBS through progressive environmental degradation. Such negative implications highlight the urgent need to dedicate considerable effort to preventing and ultimately reversing SBS.
This is a great talk by Nate Osgood on the intersection of systems and complexity with data science and machine learning:
Overconsumption isn’t green.
Tesla’s strategy of building electric cars that are simply better than conventional cars has worked brilliantly. They harnessed lust for raw power in service of greener tech (with the help of public subsidies – the other kind of green involved).
That was great, but now it’s time to grow up. Not directly emitting CO2 just isn’t good enough. If personal vehicle transport continues to grow exponentially, it will just run into other limits, especially because renewable electricity is not entirely benign.
The trucks on the horizon are perfect examples. The Cybertruck consumes nearly twice the energy per mile of a Model 3 (and presumably still more if heavily loaded, which is kind of the point of a truck). That power is cheap, so anyone who can afford the capital cost can afford the juice, but if it’s to be renewable, it’s consuming scarce power that could be put to greener purposes than stroking drivers’ egos. It’s also consuming more parking and road space and putting more rubber into waters.
The EV transition isn’t all bad – it’s a big climate mitigation enabler. But I think we could find wiser ways to apply technology and public money that don’t simply move the externalities to other areas.
More from Galbraith on the crash of ’29:
Some of those in positions of authority wanted the boom to continue. They were making money out of it, and they may have had an intimation of the personal disaster which awaited them when the boom came to an end. But there were also some who saw, however dimly, that a wild speculation was in progress, and that something should be done. For these people, however, every proposal to act raised the same intractable problem. The consequences of successful action seemed almost as terrible as the consequences of inaction, and they could be more horrible for those who took the action.
A bubble can easily be punctured. But to incise it with a needle so that it subsides gradually is a task of no small delicacy. Among those who sensed what was happening in early 1929, there was some hope but no confidence that the boom could be made to subside. The real choice was between an immediate and deliberately engineered collapse and a more serious disaster later on. Someone would certainly be blamed for the ultimate collapse when it came. There was no question whatever who would be blamed should the boom be deliberately deflated.
This presents an evolutionary problem, preventing emergence of wise regulators, even absent “power corrupts” dynamics. The solution may be to incise the bubble in a distributed fashion, by inoculating the individuals who create the bubble with more wisdom and memory of past boom-bust cycles.
I picked up John Kenneth Galbraith’s account of The Great Crash at a used bookstore. I’m not far into it, but there’s a nice assertion of the importance of a systemic view over event-based descriptions right at the start:
… implicit in this hue and cry was the notion that somewhere on Wall Street … there was a deus ex machina who somehow engineered the boom and bust. This notion that great misadventures are the work of great and devious adventurers, and that the latter can and must be found if we are to be safe, is a popular one in our time. … While this may be a harmless avocation, it does not suggest and especially good view of historical processes. No one was responsible for the great Wall Street crash. No one engineered the speculation that preceded it. Both were the product of the free choice of hundreds of thousands of individuals. The latter were not led to the slaughter. They were impelled to it by the seminal lunacy which has always seized people who are seized in turn with the notion that they can become very rich. …
Galbraith’s purpose in writing the book is itself systemic, to weaken the erosion of memory that permits episodic boom bust cycles:
Someday, no one can tell when, there will be another speculative climax and crash. There is no chance that, as the market moves to the brink, those involved will see the nature of their illusion and so protect themselves and the system. … There is some protection so long as there are people who know, when they hear it said that history is being made in this market or that a new era has been opened, that the same history has been made and the same eras have been opened many, many times before. This acts to arrest the spread of illusion. …
With time, the number who are restrained by memory must decline. The historian, in a volume such as this, can hope that he provides a substitute for memory that slightly stays that decline.
Jim Hines gets to the heart of the matter in under 4 minutes: