JFRM  Vol.6 No.2 , June 2017
Psychological Endurance Hypothesis for Uncertain Decision and Its Application in Supply Chain Information Sharing
Abstract: This paper aims to present a new hypothesis to understand better decisions with uncertainties, and to explore as well its application in improving supply chain information sharing. From the observation that real investment decision behaviors generally imply that investors’ mental states tend to experience subtle changes with increasing the amount of investments, the psychological endurance hypothesis and the corresponding utility function are constructed. The hypothesis embraces the income-cost ratio into the set of constraints of the value of an investment, which emphasizes the decisive role of investment return rate or profit rate, and then innovatively introduces the concept of critical point of psychological endurance from which it is found that the investment behaviors demonstrate completely different characteristics on the left and right side of this critical point, and that investors’ investing willingness could be raised through exercising their psychological endurance to move outward the locations of their critical points of psychological endurance. Making further use of the hypothesis produces the shorter-board optimization model of supply chain information sharing with decision variable of the value index of information sharing. This model reveals that enterprise’s value index of information sharing has a positive relationship with the success rate of information sharing, but a negative one with the information-sharing cost elasticity of psychological vulnerability, the social risk level, and the cost of information sharing. And the model also suggests that the overall information sharing of a supply chain could be eventually achieved by ever increasing the shorter-board enterprise’s value index of information-sharing.
Cite this paper: Gao, X. , Shi, Y. , Zhang, J. and Luo, Y. (2017) Psychological Endurance Hypothesis for Uncertain Decision and Its Application in Supply Chain Information Sharing. Journal of Financial Risk Management, 6, 210-229. doi: 10.4236/jfrm.2017.62016.

[1]   Bell, D. E. (1985). Disappointment in Decision Making under Uncertainty. Operations Research, 33, 1-27.

[2]   Cabantous, L., & Cedric, D. (2004). Is Probability Weighting Sensitive to the Quality of Probabilistic Information? An Experimental Investigation on the Impact of Vagueness and Conflict on Probabilistic Weighting Functions. 2004 North American Regional Meeting, Tucson, University of Strasbourg, France.

[3]   Chen, C., & Miao, L. (2010). Information Sharing Incentive under the Obligation of the Supply Chain Flexibility Contract. Contemporary Economy and Management, 32, 23-28.

[4]   Ge, Y., Yang, J. B., & Spring, M. (2004). System Dynamics Modeling for Supply-Chain Management: A Case Study on a Supermarket Chain in the UK. International Transactions in Operational Research, 11, 495-509.

[5]   Kahneman, D., & Tversky, A. (1979). Prospect Theory: An Analysis of Decision Making under Risk. Econometrica, 47, 263-292.

[6]   Li, L. (2002). Information Sharing in a Supply Chain with Horizontal Competition. Management Science, 48, 1196-1212.

[7]   Lin, Z., & Tsao, D. B. (2006). On the Evaluation of Downstream Information Sharing. Journal of Japan Industrial Management Association, 56, 413-420.

[8]   Loomes, G., & Sugden, R. (1986). Disappointment and Dynamic Consistency in Choice under Uncertainty. Review of Economic Studies, 53, 271-282.

[9]   Ma, X., Zhang, L., & Tian, P. (2001). Information Sharing Incentive in Supply Chain. Chinese Journal of Management Science, 9, 19-24.

[10]   Mellers, B. A. (2000). Choice and the Relative Pleasure of Consequences. Psychological Bulletin, 126, 910-924.

[11]   Mishra, B. K., Raghunathan, S., & Yue, X. (2007). Information Sharing in Supply Chains: Incentives for Information Distortion. IIE Transactions, 39, 863-877.

[12]   Mukhopadhyay, S. K., Yue, X. H., & Zhu, X. W. (2011). A Stackelberg Model of Pricing of Complementary Goods under Information Asymmetry. International Journal of Production Economics, 134, 424-433.

[13]   Simon, H. A. (1956). Rational Choice and the Structure of the Environment. Psychological Review, 63, 129-138.

[14]   Sun, K., & Liu, R. (2013). Inter-Organizational Information Sharing Strategy Choice Based on Information Processing Theory. Chinese Journal of Management, 10, 293-298.

[15]   Tversky, A., & Kahneman, D. (1992). Advances in Prospect Theory: Cumulative Representation of Uncertainty. Journal of Risk and Uncertainty, 5, 297-323.

[16]   von Neumann, J., & Morgenstern, O. (1944). The Theory of Games and Economic Behavior. Princeton, NJ: Princeton University Press.

[17]   Wang, L., Lu, Q., & Shen, X. (2013). How Can Emotional Arousal Affect Decisions under Uncertainty? From the Perspective of Decision Preferences. Journal of Industrial Engineering and Engineering Management, 27, 16-21.

[18]   Wu, G., & Gonzalez, R. (1996). Curvature of the Probability Weighting Function. Management Science, 42, 1676-1690.

[19]   Xiao, M. (2011). Research on the Effect of Emotional Conflict on Decision-Making under Uncertainty. Chongqing: Southwest University.

[20]   Ye, F., Chen, X., & Lin, Q. (2012). Analysis of Supply Chain’s Demand Information Sharing Values Based on Decision-Maker’s Risk Aversion Characteristics. Journal of Industrial Engineering and Engineering Management, 26, 176-183, 196.

[21]   Zhang, H. (2002). Vertical Information Exchange in a Supply Chain with Duopoly Retailers. Production and Operations Management, 11, 531-546.

[22]   Zhang, Y., & Chen, J. (2004). Study Based on Stackelberg Game about the Information Sharing Coordination in Supply Chain. Journal of Industrial Engineering and Engineering Management, No. 3, 118-120.

[23]   Zhang, Z., & Zhou, Y. (2004). Cooperative Game Analysis of Stakeholders’ Information Sharing in Supply Chain. Science and Technology Management Research, 24, 114-116.

[24]   Zhong, Z. (2010). Research on Supply Chain Information Sharing Model and Its Optimization. Chengdu: Southwest Jiaotong University.

[25]   Zhou, X., & Ma, F. (2010). An Incentive Model of Information Sharing in Supply Chain with Demand Uncertainty. Journal of Industrial Engineering and Engineering Management, No. 4, 122-126.