Mathematical model to mitigate planning fallacy and to determine realistic delivery time

Abstract

Planning fallacy is the tendency to underestimate the duration of a task due to the optimistic bias of individuals. We design a mechanism from the principal's perspective (an original equipment manufacturer (OEM)) to mitigate the optimistic bias of agents (a contract manufacturer (CM) and a supplier) in a serial supply chain. The OEM determines the deadline of agents by explicitly factoring the agent's planning fallacy in the model through the cost under-estimation factor. Further, we prove that threshold based incentives are better than lump-sum bonus to motivate the supplier and the CM to mitigate procrastination of task. Keywords: Planning fallacy, Procrastination, Optimistic bias, Behavioural operations