Crying Wolf and a Knowing Wink: Strategic Inflation and Discounting of Information in Supply Chains

Two field case studies uncover what we call the bilateral information discounting behavior, wherein one party misrepresents and inflates its requirements and the other party in the relationship discounts it and reciprocates with smaller or slower responses. In supply chains, this behavior manifests in the form of schedule padding and order inflation. This strategic behavior results in (and from) low credibility of information exchanged between the parties and settles in, what we conjecture as a Nash Equilibrium (i.e. neither party unilaterally benefits from shifting). Eye-tracking experiments based on these case studies unpack the psycho-physiological mechanisms behind this behavior. Simultaneously rectifying the supplier’s discounting behavior and educating the buyer of the same, restores information credibility and reduces the information discounting. Educating the buyers of the optimal target inventory, additionally improves cost performance.