Bounded rationality in service systems

Tingliang Huang, Gad Allon, Achal Bassamboo

Research output: Contribution to journalArticlepeer-review

52 Scopus citations

Abstract

The traditional operations management and queueing literature typically assumes that customers are fully rational. In contrast, in this paper we study canonical service models with boundedly rational customers. We capture bounded rationality using a model in which customers are incapable of accurately estimating their expected waiting time. We investigate the impact of bounded rationality from both a profit-maximizing firm's perspective and a social planner's perspective. For visible queues with the optimal price, bounded rationality results in revenue and welfare loss; with a fixed price, bounded rationality can lead to strict social welfare improvement. For invisible queues, bounded rationality benefits the firm when its level is sufficiently high. Ignoring bounded rationality, when present yet small, can result in significant revenue and welfare loss.

Original languageEnglish (US)
Pages (from-to)263-279
Number of pages17
JournalManufacturing and Service Operations Management
Volume15
Issue number2
DOIs
StatePublished - Mar 1 2013

Keywords

  • Behavioral operations
  • Bounded rationality
  • Consumer behavior
  • Queueing
  • Service operations

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research

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