Title: Decision biases in the capacity expansion problems with product importance perceptions

Authors: Giteak Roh; Seongam Moon; Kyunghwan Choi

Addresses: 8th Corps in Republic of Korea Army, 36-2, Gan-ri, Sonyang-myeon, Yangyang-gun, Ganwon-do, South Korea ' Department of Defense Management, Korea National Defense University, 1040 Hwangsanbeol-ro, Yangchon-myeon, Nonsan-si, Chungcheongnam-do, South Korea ' Department of Defense Management, Korea National Defense University, 1040 Hwangsanbeol-ro, Yangchon-myeon, Nonsan-si, Chungcheongnam-do, South Korea

Abstract: Capacity expansion is one of the vital areas of decision-making in production management and its sustainability. Most quantitative studies on capacity expansion have been focused on computing the optimal times or sizes. In this paper, we investigate the effect of substantial and nominal importance on the capacity expansion decision-making through online experiments. We provide three results for capacity expansion decision-making. First, both substantial and nominal importance perceptions have an effect on capacity expansion decision-making. Second, capacity expansion experiments also show the analogical results of Schweitzer and Cachon's (2000) study, the pull-to-centre effect regardless of high or low margins. Third, the nominal importance effect at low margins affects capacity expansion decision-making, but not at high margins. Our study gives implications that bounded rationality also occurs in capacity expansion decisions, so it must be analysed with mathematical models to ensure more reasonable results.

Keywords: capacity expansion; product importance; decision-making; bias heuristics; behavioural operations management; BOM.

DOI: 10.1504/IJADS.2023.131844

International Journal of Applied Decision Sciences, 2023 Vol.16 No.4, pp.508 - 524

Received: 07 Dec 2021
Accepted: 21 Mar 2022
Published online: 04 Jul 2023 *

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