The impact of profit on rationality: Confirmation biases during purchasing decisions – a vignette-based experiment

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The impact of profit on rationality:

Confirmation biases during purchasing

decisions – a vignette-based experiment

Master Thesis

by

Rachel Dodds

Degree course: Double Degree Operations Management Universities: University of Groningen

Newcastle University Student number: S2231557/B5060830 Date of submission: 12.12.2016

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Abstract

Supplier selection is a crucial part when making purchasing decisions. In this regard, literature in purchasing and supply chain management often assumes rationality during the supplier selection process. However, rationality does not necessarily hold under real-life conditions where there is uncertainty due to e.g. limitations in information gathering or memory constraints. In particular, individuals are said to delegate less time and resources to a decision they perceive as being of low importance. This, in turn, could cause people to deviate from rational decision-making and, thus, result in a biased decision. In this context, confirmation biases describe the process of choosing information that confirms prior beliefs. There is substantial evidence confirming the existence of this particular bias. However, little is known about the relation between profit impact and confirmation biases. Yet, profit impact is believed to relate to how the importance of a decision is perceived and should, therefore, be examined. By means of a vignette-based experiment, this paper studied how the impact on profit sways the effort in seeking confirming evidence during the supplier selection process. This was investigated, in both, in light of a credible source as well as a less credible source of information. It was found that profit impact does not cause purchasers to look for confirming evidence. Nevertheless, source credibility turned out to directly influence the time purchasing managers spend on evaluating the provided information. Last but not least, it was found that managers who stayed with their initial choice during the experiment looked more for confirming evidence.

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Acknowledgements

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List of tables

Table 2.1. Kraljic’s portfolio matrix

Table 3.1. Sources of utilized constructs and items Table 3.2. Sources of manipulation check

Table 4.1. Sample characteristics Table 4.2. Results manipulation check

Table 4.3. Results on clicks & time spent on specification

List of figures

Figure 2.1. Conceptual model

Figure 4.2. Time spent on specification & number of clicks per respondent Figure 4.3. Clicking behaviour between credibility and profit impact Figure 4.4. Clicking behaviour on supplier choices

Appendix

Appendix A Vignette English Appendix B Vignette German Appendix C Vignette Dutch Appendix D Descriptives

Appendix E Check for outliers: Boxplots Appendix F Check for normality: Q-Q plots

Appendix G Check for homogeneity - Levene’s test Appendix H Check for homogeneity - Welsh test Appendix I Reliability check

Appendix J T-test

Appendix K Chi-square test Appendix L Two-way ANOVA

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1. Introduction

Supplier selection decisions have been receiving an increasing amount of attention lately due to suppliers being more engaged with strategic roles in creating and sustaining a competitive position than they used to (Kull et al., 2014; Kaufman, Michel & Carter, 2007). Literature in purchasing and supply chain management often assumes that managers act in a rational manner when making decisions (Pisano et al., 2007; Kaufmann, et al., 2012). It is expected that decision makers gather relevant information, use an appropriate amount of time and utilize computational resources to process this particular information in the supplier selection process (Katsikopoulos & Gigerenzer, 2013). However, rational decision processes are considerably more resource-intensive than intuitive and rather simple ones, which also leads to rational decision processes being more expensive and slower for the company (Kaufmann et al., 2012). Therefore, people sometimes resort to less than rational and, thus, quicker ways of making decisions. For these reasons, it is not surprising that these decisions are vulnerable to decision biases.

Decision biases, generally, refer to systematic deviations from rationality in decision making, which often occur during business-to-business sourcing activities (Kaufmann, Michel & Carter, 2009; Pisano et al., 2007). Thus, rather than deciding rationally, inferences may lead to satisficing, reasonable or even illogical conclusions (Kaufman, Michel & Carter, 2009; Kaufmann et al., 2012). One of these possible deviations are confirmation biases which refer to the tendency to choose information that confirm one’s prior opinions or beliefs (Schwind & Buder, 2012; Hernandez & Preston, 2012; Rabin & Schrag, 1999). This, in turn, can possibly lead to poorer decision-making since evidence is not being fully evaluated (Kosnik, 2007; Mendel et al, 2011; Nelson, 2014). Consequently, firms may incur serious profit losses or be forced to exit a market (Costantino et al., 2009).

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7 expected profit impact of a product is low, the importance of this product in question will be rated lower as well and, subsequently, a decision is more likely to be biased. Subsequently, we expect that purchasing professionals will more likely seek confirming evidence to support their decision. Moreover, existing literature revealed that consumers rather believe information when it comes from a source with a credible reputation (Hada, Grewal & Lilien, 2013). For this reason, we believe that the credibility of a source mitigates the effect between profit impact and confirmation bias.

The goal of this thesis is to investigate, by means of a vignette-based experiment, how profit impact and source credibility sway a purchasing manager’s effort in seeking confirming evidence. Vignettes are “short descriptions of a situation that contain precise reference to what are thought to be important factors in the decision-making processes of respondents” (Hora & Klassen, 2013, p. 55). These vignettes were distributed among professionals with purchasing experience who were asked to respond to these scenarios as they would have in their usual role as a purchasing manager.

The remainder of this paper is structured as follows: At first, a literature review is presented on the supplier selection process and cognitive biases are explained, whereby special attention is paid towards confirmation biases. Afterwards, the methodology section describes the research design and explains the data collection method. Thereafter, the results from the data collection are mentioned and later critically discussed. Finally, limitations and recommendations for future research are mentioned as well as some concluding remarks made.

2. Theoretical Background

2.1. T

HE SUPPLIER SELECTION PROCESS

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8 retailers” (Wang, Huang, & Dismukes, 2004, p.1). They may be regarded from two perspectives. At first, the perspective of the focal firm aims to safeguard the broader interests of the firm. Alternatively, the view from the chain itself thrives towards safeguarding the interests of the entire supply chain (Frostenson & Prenkert, 2015; Mizgier, Juettner & Wagner, 2013). While the main aim of supply chain management is ultimately to meet customer demand in an efficient way (Wang, Huang, & Dismukes, 2004; Chen, 2011), purchasing thrives towards gathering the “right quality of material in the right quantity from the right source at the right time and at [a] reasonable price” (Jain, Wadhwa, & Deshmukh, 2007, p.1324). To ensure that these functions are carried out efficiently, exploitations of biases should be prevented. Therefore, purchasing managers need to evaluate the overall capability and related risks of potential suppliers in meeting the organisation’s sourcing objectives (Kull et al., 2014). This has become even more critical over the last years due to the increased use in quality management and just-in-time (JIT) systems (Jain, Wadhwa, & Deshmukh, 2007).

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9 threats based on corresponding attributes, past research found that human judgment is never rational but rather highly biased towards the purchaser’s own intuitive thought processes (Jain, Wadhwa, & Deshmukh, 2007). For this reason, it is believed that biases will be most prevalent during the final phase of the supplier selection process, where an actual choice is being made.

2.1.1.THE SUPPLIER SELECTION DECISION

Supplier selection decisions are said to ensure the success of organisations not only because they directly influence production costs, lead times, as well as product quality but also because purchasing costs represent roughly more than 50% of a company’s total costs (Kaufmann et al., 2012). In this regard, purchasers are responsible for evaluating the product of interest of potential suppliers as well as judge the capabilities of the supplier in offering support in the future and uphold their supplier performance (Hada, Grewal & Lilien, 2013; Riedl, Kaufmann, Zimmermann & Perols, 2013). Nevertheless, supplier selection is said to be influenced by the perceived importance and perceived complexity regarding the decision (de Boer, 1998). Likewise, Mantel et al. (2006) found that the perceived level of risk impacts the way information is processed and how purchase decisions are made considerably. This means that with a decrease in importance and complexity and, therewith, a decrease in risk, purchasing managers will also delegate less time and resources towards processing the information in order to come to a decision (Hada, Grewal & Lilien, 2013).

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10 are usually many suppliers available, which makes it easy to switch from one supplier to another, if necessary. At the same time the impact on profit is potentially large because these features are essential for the end product. For non-critical items, impact on profit and supply risk are both low. The goal of these items is to minimize the total costs of preparing and making purchase orders. Non-critical items are usually easy to buy and do not have a high impact on financial results, e.g. office supplies such as paper or pens. In contrast, strategic items refer to products with a high supply risk and high impact on profit. Thus, when for any reason the supplier in this case ceases to deliver the expected products, the entire purchasing process stagnates. Strategic items are often dominated by suppliers who determine the quality, packaging, delivery etc. Raw materials are considered strategic items because suppliers basically deice on the previously mentioned factors. Finally, bottleneck items display a low impact on profit but a high supply risk. Unavailability of the product is the most common reason for the large supply risk. Overall, no effort is made to shift the existing suppliers from the left column of the matrix to the right (Gelderman & Semeijn, 2006).

Profit Impact Supply Risk

Low High

High Leverage items Strategic items

Low Non-critical items Bottleneck items

Table 2.1 Kraljic's portfolio matrix (Gelderman & Semeijn, 2006).

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2.2. C

OGNITIVE BIASES IN THE SUPPLIER SELECTION PROCESS

Cognitive biases are considered limitations in information gathering, computing capabilities and limited memory, which may result in individuals not being able to evaluate all alternatives properly (Carter, Kaufmann, Michel, 2009). This, in turn, can lead decision makers to simplify decision strategies and cause bounded rational decisions. Bounded rationality implies that cognitive abilities do not equal the difficulty and complexity of decisions, which leads to not being able to optimize the objective functions and, thus, use alternative cognitive strategies to reach a decision (Mallard, 2012). In other words, due to different assessments of risks and complexity, individual decisions may be different than when more analytical measures are taken to assess a situation. Existing literature generally agrees that when the importance of a sourcing category is regarded as low, purchasing managers will also perceive the consequences and risks as lower since they expect failures to be either not clearly visible or to not have a large impact (e.g. Hada, Grewal & Lilien, 2013; Kull et al.,2014; Simon, Houghton & Aquino, 1999). For this reason, one could argue at this point that there is no necessity in investigating this bias because consequences are not always immediately visible. Nevertheless, the risk of unexpected disruptions or quality failures can occur at a later point of time and cause serious consequences, which are not always expected beforehand. Yet, these consequences can possibly be prevented through spending more time on analysing the situation in the beginning (Kull et al., 2014).

2.2.1.CONFIRMATION BIASES IN THE DECISION-MAKING PROCESS

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12 information that would otherwise disconfirm one’s beliefs may lead to a faulty-made decision, which cannot be easily corrected (Jonas et al., 2001; Kull et al., 2014).

While economists as well as other utility maximizing theorists assume that rational people will evaluate all information they have in an unbiased and non-subjective manner; confirmatory biases imply that new pieces of information are evaluated in a subjective way and are based on previous established beliefs. Hence, confirmation biases are often categorized as information processing problems. Nevertheless, this does not necessarily imply that confirmation biases are also transaction cost problems. Rather, confirmatory evidence is kept and processed, even though there are problems in digesting and translating the related information (Stanovich, West & Toplak, 2013).

Looking at the supplier selection process, it is expected that purchasers will not invest as much time and effort on evaluating potential suppliers when expected profit is low. In this regard, we believe purchasers will view the item of discussion less important and, subsequently, regard the consequences of failure not as severe as when the stakes were higher. We, therefore, assume that rather than investigating all information rationally, individuals will rely on short-cuts and prefer looking for evidence that confirms their initial beliefs and expectations. In comparison, when profit impact is high, the importance of the product in question will be rated accordingly. Therefore, we expect that purchasing professionals will be less biased and, hence, more rational in their decision-making. These expectations have been formulated into the following hypothesis:

H1: Profit impact decreases desire to the search for confirming evidence.

2.2.2.INFORMATION THAT TRIGGERS CONFIRMATION BIASES

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13 decision and being more critical towards the options they reject (Mosala, 2007). For instance, when people buy a new car they will probably read more advertisements of this particular car instead of other cars to decrease overall dissonance and reinforce the correctness of the decision they made. Thus, the larger the level of dissonance managers experience after a (supplier) decision, the more likely this manager will favour information in support of this decision and avoid contradicting information (Frey, 1982). Moreover, past research discovered that people are more likely to look for confirming information when they do not have any prior knowledge, the provided facts are large and/or the decision is rather complex (Frey, 1981; Fischer, Schulz-Hardt, & Frey, 2008). These aspects could result in additional levels of uncertainty, which managers try to reduce through seeking information that confirms their initial beliefs (Frey, 1981). However, the search for confirming evidence may also be triggered by information quality. For instance, Frey (1981) found that individuals are more sensitive to search for confirming evidence when they expect high quality information. At the same time, if individuals feel the high-quality information is not helpful, they will rather look for disconfirming information. Similarly, literature argues that when confirming evidence originates from a highly credible source, individuals will more likely consider this information as useful, and develop a considerable desire to read it (Hada, Grewal & Lilien, 2013; Frey, 1981). In contrast, when confirming evidence originates from a less credible source and is not useful, individuals are more likely to reject it and subsequently increase their desire for disconfirming evidence. Nevertheless, one may argue that credibility depends on factors like recency of the information, which could decrease the initial perception of the credibility (Eryarsoy, & Piramuthu, 2014).

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14 consequently, will be triggered to look for confirming evidence instead. The assumptions have been formulated into the following hypothesis:

H2: The credibility of the source moderates the relation between profit impact and biased decision making, such that in case of a credible information source the bias is less severe than in the case of a non-credible source.

2.3. C

ONCEPTUAL MODEL

This thesis investigates whether profit impact causes people to look for confirming evidence. More specifically, we expect that low profit impact will trigger the individual to look for confirming evidence, considering that both, the perceived importance of the product and related risks, are regarded as rather low. In addition, it is assumed that this relationship will be influenced by the credibility of the source that provides additional information. Particularly, we predict that high source credibility mitigates the search for confirming evidence and, basically, makes the individual more rational in his decision. The proposed relationship is displayed below (see figure 2.1.).

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3. Research Methodology

3.1. C

HOICE OF RESEARCH METHOD

Behavioural experiments complement traditional research methods such as surveys or case studies through controlling hypothesized causal relationships (Liao, Mantel, & Tatikonda, 2006). Meaning, while surveys and case studies can only make suggestions regarding correlations, experiments are able to investigate whether a variable X causes a variable Y (Cartwright, Kamerschen, & Huang, 1989). In other words, behavioural experiments investigate the effect of a specified independent variable (hypothesized cause) on a certain dependent variable (hypothesized effect) (Knemeyer & Walker Naylor, 2011). In this regard, experiments often benefit from high level of control through random assignment of participants (Hora & Klassen, 2013). Thus, through randomly assigning participants to a task, this study was able to gain control and to investigate more effectively the influence of profit impact and source credibility on experiencing a confirmation bias. Nevertheless, one needs to keep in mind that this research method depends deeply on the diligence, goodwill as well as level of comprehension regarding the topic of investigation of the respondent (Karlsson, 2009). Hence, in case the participant is not really committed to participating in the study or cannot picture himself in the situation, the success of the experiment is endangered. Therefore, completing the vignettes was regarded as being sufficiently motivated to participate in this research. Moreover outliers were measured and revealed in case there were any major inconsistencies between responses.

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16 3.1.1.VIGNETTE DEVELOPMENT

Literature describes four stages for the development of vignettes. At first, the predesign stage is based on the conducted literature review during which information is gathered to understand the context of the research question, the factors of interest and their measurement level (Rungtusanatham, Wallin & Eckerd, 2011). The literature that was analysed during this investigation revealed that an empirical context for the vignettes was required that (1) respondents could relate to, (2) where products are chosen based on a clear profit impact and risk level, and (3) where the role as well as credibility of the information source is obvious. The design stage refers to the phase where the vignettes are actually being written (Rungtusanatham, Wallin & Eckerd, 2011). Since this research attempted to determine the effect of two variables, four vignettes were designed. The factors that were being manipulated are profit impact (high vs. low) and source credibility (credible vs. less credible). As recommended, the structure of the vignettes was based on several scientific papers from previous studies. When there were no existing measurements available, the researcher based the development of the measurements on the literature investigation as well as on the expertise of two researchers from the University of Groningen. The post-design stage is acknowledged as the validation phase to provide clear, realistic, complete and effective vignettes (Hada, Grewal & Lilien, 2013; Rungtusanatham, Wallin & Eckerd, 2011). Crucial in this context is that the developed vignettes are realistic but do not consist of too many details. Moreover, the different scenarios have to be formally similar to be able to investigate the same information and minimise the overall impact of variation. For this reason, the vignettes were reviewed by a panel of individuals consisting of students and professionals from different educational and professional backgrounds. Based on their suggestions, some sentences were changed and a few minor improvements undertaken regarding the structure.

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17 capture the meaning behind certain responses in the same way as open questions are (Hughes & Huby 2004). Keeping the previously mentioned steps in mind, the designed vignettes were, at first, set up to investigate the final phase of the initial supplier selection process, namely choosing the supplier. This phase was chosen because it was expected that this is where the confirmation bias will be most apparent. Further, each participant was confronted with three parts. During the first section, the purchase scenario was introduced where the fictive purchase organisation and their task was explained. Moreover, the potential profit impact and the level of risk of choosing the wrong supplier was explained. In the second part, a potential supplier was disclosed to the reader and his reputation rated by an either credible or less credible source of information. After these two parts were revealed, the respondent was asked to indicate his opinion regarding the first supplier and to rate the importance of the product in question. Thereafter, a third role scenario was presented to the subject during which confirming, disconfirming and neutral information about two potential suppliers was revealed. The respondent was asked to click on the information which he deemed necessary to make a decision at a later point in time. Afterwards, the purchasing professionals were asked to rate both suppliers and make a final supplier choice. This structure of the vignette was based on the investigation by Mendel et al. (2011).

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18 3.1.2.MEASUREMENT

For the vignettes and the subsequent manipulation to be effective, the hypothesized cause had to be manipulated, while everything else had to be held constant. Therefore, this experiment was controlled for age, gender, education level, type of purchasing activity, size of the purchasing department, whether they are employed full-time or part-time, as well as years of purchasing experience and size of company. Secondly, the participants had to be first exposed to the hypothesized cause before being exposed to the hypothesized effect. Meaning, the manipulation relating to the profit impact and source credibility had to be in place before it could be checked whether the participants showed any effects of a confirmation bias. Finally, participants had to be randomly assigned to one of the scenarios to ensure that the effects on the dependent variable were actually caused by the independent variable (Knemeyer & Walker Naylor, 2011). The target group was provided each with one hypothetical scenario and closed questions were asked related to this scenario, which was later analysed by means of SPSS.

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Table 3.1. Sources of utilized constructs & items

The utilised items that measure the probability of selecting the suppliers and the control questions were based on a 7-point Likert scale. The benefit of a Likert scale is that it is an easy and very beneficial way to receive insights into a person’s position regarding a particular issue and certain conclusions. Yet, potential drawbacks of this approach are that participants could be tempted to mark the same responses (Karlsson, 2009). To decrease this possibility, all questions were randomized. An alternative method to anticipate marking the same responses could have been to recode some sample items by rephrasing a positive item in a rather negative way (Karlsson, 2009). However, considering the small number of questions in this survey we found it sufficient to randomize the responses.

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21 introduced as the need to buy paper for an also fictive industrial manufacturer. Furthermore, source credibility was represented as either the Consumentenbond or the subject’s neighbour. In this context, the Consumentenbond referred to an existing and highly credible institution, while the participant’s neighbour ought to represent a less credible choice. The effect of these variables on the dependent variable experiencing a confirmation bias was measured in three different ways. At first, on grounds of the confirmation bias definition that was provided during the literature review, we checked whether subjects actually stayed with their initial supplier choice. Obviously, if they switched suppliers they were not looking for confirming evidence. Hence it was essential to check whether the participants stayed with their initial choice for the bias to be effective. Additionally, we measured the amount of time they spent on the specification section because on grounds of the literature review we assumed that if they were seeking confirming evidence they would have invested less time on analysing the available options compared to when they would have investigated the provided information more rationally. Similarly, the number of clicks in the specification section were also measured since we expected that a rational decision would indicate more clicks. This was assumed based on the opinion that more information has to be clicked on when evaluating information of both suppliers in a rational way. Even though we recognize the added value of partitioning the data according to disconfirming, confirming and/or neutral information and presenting it to the participants; we did not deem this necessary for our research because we were more interested in how people made decisions without knowing whether it was positive beforehand. Furthermore, in real life you also only know whether information is positive when you read it.

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Table 3.2. Sources manipulation check

3.1.3.VIGNETTE TESTING

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23 In total, five pre-tests were conducted with respondents from diverse professional backgrounds. Afterwards some minor changes and adaptations were made.

3.2. S

AMPLING STRATEGY

The target population were purchasing professionals. Thus, to be representative for the entire population, the sample had to consist out of experienced purchasers. In this regard, the Dutch purchasing association Nevi agreed to put the URL of the vignettes on their website, their Facebook page as well as on their LinkedIn site to reach the target group. In addition to this approach, purchasing experts were contacted through different purchasing and procurement groups on business-employment-oriented social networking websites such as LinkedIn.com and Xing.de. Another form of contacting potential respondents was through the researcher’s own personal network and referrals from other participants. The advantage of this procedure was that subjects could complete the vignettes at their own convenience, absolute anonymity was ensured, and interviewer bias was reduced (Karlsson, 2009). Nevertheless, it needs to be kept in mind that when potential candidates are contacted via less personal channels that the response rate could be rather low. Moreover, since there were neither open questions nor personal interviews, it was not possible to go into detail after certain responses.

3.2.1.SAMPLING PROCEDURE

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24 the results of the research. Finally, the participants were thanked for their cooperation and allowed to exit the platform. The participation was voluntary and took roughly 6-8 minutes.

3.3. V

ALIDITY

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25 In addition to the previously indicated validity measures, it was also checked for the following complications. Common response bias refers to the practice of using the same result without reading the initial questions (Suzman, Willis, & Manton, 1992). To largely reduce the occurrence of this bias, all scales were randomized. The survey was translated into German, English, and Dutch which was hoped to increase the target group and increase generalizability. In addition, the vignettes were published on the internationally popular career website LinkedIn which was hoped to attract an even larger group of respondents. For this reason, the results of this experiment are expected to be valid for different cultural backgrounds. Finally, missing data represents a negative impact on statistical power and may cause biased estimates in several ways. The best approach to dealing with missing data is to prevent their occurrence in the first place by increasing respondent involvement, giving them clear instructions in the questionnaires as well as supporting and recalling respondents to ensure completeness after administering the questionnaire (Karlsson, 2009). In this particular study, missing data were dealt with through integrating forced response into the questionnaire. Through this addition, the subject was not able to continue with the vignette if some questions were not answered and, thus, data was still missing. Nevertheless, this could have also lead to respondents exiting the vignettes because they did not know how to respond but were still forced to give an answer.

3.4. E

THICS

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4. Results

4.1. D

ATA ANALYSIS

Altogether, 153 complete responses were obtained of which 120 were males and 33 females with the majority of the respondents having an experience level of 6-15 years. Additional information regarding the distribution of the sample can be found below (see table 4.1.) and in the appendix (See appendix D).

Table 4.1. Sample characteristics

4.2. M

ANIPULATION CHECK

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Table 4.2. Results manipulation check

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4.3. R

ESULTS OF THE EFFECT BETWEEN PROFIT IMPACT AND SEEKING

CONFIRMING EVIDENCE

To receive some first insights about the respondent’s behaviour in terms of clicking and time spent on the specification section, we decided to plot this data in a graph (see figure 4.1.). These graphs basically demonstrate that there is a large variation in the data, which is supported by the mean and the rather high standard deviations, which can be found in the table below (see table 4.3.). This signifies that the time spent and the number of clicks differ largely per person.

Figure 4.1. Time spent on specification & number of clicks per respondent

In order to gain additional insights into the group dynamics between independent and dependent variables, two tests were conducted. At first, t-tests for the two groups of profit impact and the two groups of credibility were executed (see Appendix H). This was done to analyse whether the groups were distinct in the number of clicks and time spent on the specification. The results of this can be found below (see table).

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29 The t-test for profit impact and amount of clicks was not significant with t(143)=-0.32, p= 0.75. Likewise, the t-test for profit impact and time spent on the specification part was also not significant with t(143)=-0.66, p= 0.51. This suggests that the average number of clicks and time spent on the specifications did not differ between the two groups of profit impact. The t-test for credibility and amount of clicks was not significant either, with t(143)=-1.14, p= 0.26. Nevertheless, the t-test for credibility and time spent on the specification part was significant with t(143)=-2.66, p= 0.01.This suggests that the average time spent on the specifications did differ between the two groups of credibility.

Secondly, to investigate whether the two credibility groups differed from each other in terms of staying with the same supplier, a cross table with Chi-square was performed (see Appendix I). This test was also not significant with Chi Square= 0.007, p= 0.93. Moreover, there was also not sufficient evidence to suggest that there was a difference between the two profit impact groups and staying with the supplier with Chi Square=0.040 p< 0.842. These results were confirmed by the bar chart, which indicates that there were no significant changes between the two groups (see Appendix J). Thus, there is not sufficient evidence to accept the first hypothesis: profit impact does not decrease the desire to search for confirming evidence.

4.4. R

ESULTS OF THE INTERACTION EFFECT BETWEEN PROFIT IMPACT AND SOURCE CREDIBILITY

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30 number of clicks made at p=0.30 or profit impact on the time spent on the specification at p=0.62.

Secondly, to predict whether profit impact and credibility affected the nominal dependent variable staying with the supplier, a multinomial logistic regression was performed (see Appendix L). The results showed that the Pearson Chi Square statistic was not significant with p=0.725, indicating that the model fit the data well. Furthermore, profit impact and source credibility were both not statistically significant with p=0.74 and p=0.92, respectively. In summary, there is not sufficient evidence to accept the second hypothesis, source credibility does not moderate the relation between profit impact and biased decision-making.

4.5. P

OST

-

HOC FINDINGS

:

C

LICKING BEHAVIOUR BETWEEN OLD AND NEW SUPPLIERS

After we found that only a minority of the participants stayed with their initial supplier choice, we decided to look a bit more into this behaviour. For this reason, we decided to visualize this information into a bar charts (see figure 4.2. and 4.3.). As can be seen below people clicked, on average, more on the specification buttons when the profit impact and/or credibility conditions were high than when they were low (see figure 4.2.). However, people in all groups roughly clicked a similar number of times on both suppliers, indicating that they invested an equal amount of effort on the available options before making a choice. Thus, these decisions appear to be rational.

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31 However, when exploring the data about the clicking behaviour of the participants that stayed and switched their initial supplier choice, we found two interesting things. At first, we found that the subjects that stayed with their initial supplier choice clicked, on average, more often on the first supplier choice than on the alternative option. This behaviour implies that they were looking for confirming evidence and decided in favour of their initial belief. Secondly, when subjects chose the newly presented supplier, they looked on both options rather equally, which implies that they spent the same amount of effort on the provided options and made, thus, a more rational decision.

Figure 4.3. Clicking behaviour on supplier on supplier choices

5. Discussion

5.1. T

HE EFFECT OF PROFIT IMPACT

&

CREDIBILITY ON SEARCHING CONFIRMING EVIDENCE

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32 people would be less dedicated to examine the provided information since a wrongful decision would probably not have far-reaching consequences. Conversely, literature suggests that individuals tend to look more for confirming evidence when they believe they could suffer a loss in some kind of way or when they are confronted with large pieces of information (Fischer, Schulz-Hardt & Frey, 2008; Kosnik, 2007). Therefore, we predicted that when individuals were being confronted with a leverage item and received a lot of information, that this would trigger them to look for confirming evidence. Nevertheless, the results of the manipulation check on profit impact revealed significant results, implying that the variable was understood as anticipated and should have worked if there actually was an effect. This suggests, that profit impact might indeed not directly influence the search for confirming evidence. This assumption is supported by Jonas et al (2001), who indicate that specific aspects on the information itself such as persuasiveness, credibility and source competence directly influence whether a decision maker relies on confirming evidence. Likewise, other researchers indicate that individuals react to potential threats regarding the expected quality of the information. In other words, when they feel that the reliability of the data is endangered they are more likely to look for confirming evidence (Hada, Grewal & Lilien, 20130; Frey, 1981). Since profit impact does not necessarily make inferences on quality aspects of the information, we come to terms that profit impact is indeed not causing people to look for confirming evidence.

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33 to form accurate appraisals of stimuli” (Hart et al., p.557). In this regard, we believe that it is rather unlikely that either high or low profit impact will cause a defence or accuracy motivation. In comparison, based on the definition of source credibility as being an “individual’s perceived trustworthiness and expertise” we suggest that individuals are more likely to develop either of these mentioned motivations when the credibility of the source is low (Hada, Grewal & Lilien, 2013, p.84). This is assumed because when they have a prior opinion and the source credibility is low, they will more likely want to defend their initial opinion or convince others from its accuracy. Nevertheless, one needs to also take into account, that the manipulation check regarding credibility was not significant, which could imply that the manipulation regarding credibility did not work as desired.

5.2. D

ECISION

-

MAKING IN THE SUPPLIER SELECTION PROCESS

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34 believe that the credibility is not as high as expected, individuals will rather look for disconfirming evidence (Frey, 1981).

Even though we did not find sufficient evidence regarding the relationship between profit impact and source credibility on staying with the initial supplier; we did find that when people stayed with the first supplier they also clicked more often on the first supplier in the specification section. In other words, they were seeking for evidence to confirm their initial choice. This agrees with the definition of the confirmation bias (Duff, 2012; Kosnik, 2008; Nickerson, 1998). Particularly, it shows that that these managers were not only trying to confirm their initial belief but that they were also avoiding evidence that possibly could have disconfirmed their decision (Nickerson, 1998). In contrast, when the participants chose the second supplier, they looked at all information equally, implying a more rational decision.

5.3. M

ANAGERIAL

I

MPLICATIONS FOR PURCHASING PROFESSIONALS

This paper provides purchasing professionals with a few insights into supplier selection. At first, this research emphasized the essence of being familiar with potential biases that could influence a purchaser’s decision. In this regard, confirmation biases could result in faulty-made decisions that cannot always be smoothly corrected. This is particularly true when purchasers regard the importance of the decision as rather low. Our research suggests that if purchasing professionals receive information from a credible source, they will spend more time on evaluating the respective information. For this reason, it is suggested to provide purchasers with credible information in the supplier selection process because they are more likely to analyse this information in a more rational matter. Moreover, we found evidence that when people stayed with their initial supplier choice, they looked for more information at the respective supplier. Therefore, we recommend managers to pay special attention on how a decision is made and, in this context, examine whether the available data is analysed appropriately or whether they might have looked more at information relating to their choice.

5.4. L

IMITATIONS

&

F

UTURE

R

ESEARCH

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35 seeking confirming evidence; participants were not making a real-life decision with actual consequences. This could have resulted in respondents having unconsciously reviewed the facts differently than they would have under real life conditions, especially considering that subjects were able to fill out the vignettes at home where the researcher were not able to control for any possible distractions. For these reasons, it may be interesting to extend this research by conducting field experiments. Unfortunately, field experiments can be very lengthy, expensive and difficult to conduct, which is why vignette-based experiment, represent a nice alternative (Karlsson, 2009). However, when more insights into the decision-making process is desired and the means are available, it could be valuable to observe purchasing managers in their work environment. In this case, one could investigate whether purchasers are searching for confirming evidence based on actual purchasing decisions. And if they do, we believe it could be insightful to interview subjects and investigate what exactly lead them to make certain decisions.

Another limitation of this research was that the manipulation check regarding source credibility was not significant, implying that the manipulation was not successful. We reviewed the questions of concern and came to the conclusion that this might have been because the questions confused the reader since both source manipulation possibilities were mentioned. However, since we can only assume that this was the reason at this point, we suggest that future research pays particular attention to the phrasing of the manipulation check questions in case they want to make use of our questions.

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36

6. Conclusion

When making supplier selection decision, rational decision-making may present a challenging task, especially when the related decision is considered less important than other purchasing decisions. For this reason, this paper aspired to investigate how profit impact and source credibility sway a purchasing manager’s effort in seeking confirming evidence. In this context, this research supported and extended prior knowledge through conducting a vignette-based experiment among purchasing professionals.

At first, the analysis revealed that profit impact did not cause professionals to look for confirming evidence. Instead evidence was found that high source credibility led to people spending more time on investigating the provided information. Thus, high source credibility made the participants more rational. This agrees with previous findings and, thus, adds to the overall generalizability of existing literature (Frey, 1981; Hada, Grewal & Lilien, 2013; Jonas et al., 2001). Finally, we provided insights into the purchasing literature by showing that purchasers who stayed with their initial supplier choice clicked more frequently on information regarding this particular supplier. Hence, the purchasing professionals were looking for confirming evidence. In contrast, when people switched suppliers they evaluated the available data to the same extent and were, thus, more rational in their decision.

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Appendix

Appendix A Survey English Part A: General Information

Thank you for agreeing to participate in this survey! This survey is part of a study from the University of Groningen and Newcastle University into decision-making in the supplier selection process. The survey is set up to gain insight into decision-making among professionals with purchasing experience. The survey consists of general questions and questions related to a hypothetical scenario. It should take 6-8 minutes to complete. The survey complies with the ethical guidelines of both universities. Be assured that all answers you provide are recorded anonymously. Please click on the arrow to start.

Part B: Control Questions Q1. What is your gender? Male

Female

Q2. What is your age? _____________

Q3. What is your nationality? Dutch

German British

Other, namely: ____________________

Q4. What is the highest level of education you attended? High school

Trade school

University of Applied Sciences University

Other, namely____________________

Q5. Have you completed a purchasing related education (i.e. in the field of Economics and Business)?

Yes No

Q6. How many years of professional experience do you have in purchasing? None

0-2 years 3-5 years 6-15 years 16-25 years

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45 Q7. If you no longer work in purchasing, please respond to the following four questions as they were applicable in the latest position in which you were involved in purchasing. Q8. During an average week, how much time do you spend on purchasing activities? Now and then

Parttime Fulltime

Q9. What type of purchases are you typically involved with? Multiple answers are possible. Products

Services

Others, namely ____________________

Q10. How many people approximately work at your organisation? In case your organisation has multiple locations, please consider the specific location you work at.

0-9 10-24 25-49 50-99 100-249 250+

Q11. Does your organisation have a separate purchasing department? If yes, do you work in that department?

No, my organisation does not have a separate purchasing department.

Yes, my organisation has a separate purchasing department, but I do not work in this department.

Yes, my organisation has a separate purchasing department, I work in this department. Part C: Vignettes

Scenario 1: High profit impact, high source credibility

Wilke Inc. is a mid-sized automobile manufacturer headquartered in Amsterdam, the Netherlands, with 5,000 employees and several branches in the Netherlands, Belgium and Germany. You are a buyer for Wilke Inc. and are asked to order new car seats for the production of a new car. Overall this decision is low risk because there are many car seat manufacturers available but the impact on your profit is high since car seats are essential for your production. So, choosing the right supplier is very important.

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46 gave AutoSeat Inc. an “Excellent Reputation” rating with 94% of the 350 companies in the industry rated below AutoSeat Inc.

Q12. Please indicate to which degree you agree with the following statements. - Based on the information above, I would select AutoSeat Inc. as my supplier. - The item of discussion is important for Wilke Inc.

Additional Information

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47 Q13. Please indicate to which degree you agree with the following statements (Likert scale). - Based on the information above, I would select AutoSeat Inc. as my supplier.

- Based on the information above, I would select SeatSupply Inc. as my supplier. Q14. Please finish the following sentence.

- Based on the information above, I would choose (either AutoSeat Inc. or SeatSupply Inc.) Scenario 2: High profit impact, low source credibility

Wilke Inc. is a mid-sized automobile manufacturer headquartered in Amsterdam, the Netherlands with 5,000 employees and several branches in the Netherlands, Belgium and Germany. You are a buyer for Wilke Inc. and have to order new car seats for the

production. Overall this decision is low risk because there are many car seat manufacturers available but the impact on your profit is high since car seats are essential for your

production. So, choosing the right supplier is very important.

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48 year, AutoSeat Inc. held 33% of the market share in automobile parts. According to your neighbour, who is a car enthusiast, AutoSeat's reputation is excellent.

12. Please indicate to which degree you agree with the following statements. - Based on the information above, I would select AutoSeat Inc. as my supplier. - The item of discussion is important for Wilke Inc.

Aside from AutoSeat Inc. there is also a second possible supplier for car seats, namely

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49 Q13. Please indicate to which degree you agree with the following statements (Likert scale). - Based on the information above, I would select AutoSeat Inc. as my supplier.

- Based on the information above, I would select SeatSupply Inc. as my supplier. Q14. Please finish the following sentence.

- Based on the information above, I would choose (either AutoSeat Inc. or SeatSupply Inc.). Scenario 3: Low profit impact, high source credibility

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50 One of the possible suppliers for the office supplies is PaperWorld Inc. PaperWorld Inc. was founded in 1967. The majority of their products have been in the market for the last four years. Last year, PaperWorld Inc. held 33% of the market share in the paper industry. The Dutch non-profit organisation Consumtenbond promotes consumer protection and recently introduced the results of its “Industry Reputation” survey. In this survey the

Consumentenbond asks 3,000 executives and directors from different organisations to rank certain firms in a particular industry on different aspects regarding company reputations. The Consumtenbond survey gave PaperWorld Inc. an “Excellent Reputation” rating with 94% of the 350 companies in the industry rated below PaperWorld Inc.

Q12. Please indicate to which degree you agree with the following statements. - Based on the information above, I would select PaperWorld Inc. as my supplier. - The item of discussion is important for Tech Inc.

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51 Q13. Please indicate to which degree you agree with the following statements (Likert scale). - Based on the information above, I would select PaperWorld Inc. as my supplier.

- Based on the information above, I would select OfficeSupply Inc. as my supplier. Q14. Please finish the following sentence.

- Based on the information above, I would choose (either PaperWorld Inc. or OfficeSupply Inc.)

Scenario 4: Low profit impact, low source credibility

Tech Inc. is a mid-sized industrial manufacturer in the Netherlands with 5,000 employees and several branches in the Netherlands, Belgium and Germany. You are a buyer for Tech Inc. and asked to purchase office supplies such as paper from a new supplier. Overall this decision is low risk because there are many office supply manufacturers available but the impact on your profit is low because it is not essential for your production. So, choosing the right suppliers is not that important.

One of the possible suppliers for the office supplies is PaperWorld Inc. PaperWorld Inc. was founded in 1967. The majority of their products have been in the market for the last four years. Last year, PaperWorld Inc. held 33% of the market share in the paper

industry. According to your neighbour, who knows a lot about office supplies, PaperWorld's reputation is excellent.

Q12. Please indicate to which degree you agree with the following statements (Liker scale). - Based on the information above, I would select PaperWorld Inc. as my supplier.

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52 Additional information

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53 Q13 Please indicate to which degree you agree with the following statements (Liker scale). - Based on the information above, I would select PaperWorld Inc. as my supplier.

- Based on the information above, I would select OfficeSupply Inc. as my supplier. Q14 Please finish the following sentence.

- Based on the information above, I would choose (either PaperWorld Inc. or OfficeSupply Inc.)

Manipulation Check

Please indicate to which degree you agree with the following statements. All questions are related to the above scenario (Likert scale).

Profit impact

- I could earn a lot from this purchase.

- Choosing the wrong supplier will cost the firm a lot of time and money. - The product has a large impact on profit.

Supplier Choice

- I am satisfied with my supplier choice.

- I believe that the selected supplier offers more benefits than the alternative does. - If the experiment was repeated, my responses would be the same.

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54 - The information source above (either consumentenbond or neighbour) was very credible. - The information source above (either consumentenbond or neighbour) possesses a lot of expertise.

- I completely trust the source of information (either consumentenbond or neighbour). - The source that provided the information (either consumentenbond or neighbour) is of high reputation.

The impact of profit on rationality: Confirmation biases during purchasing decisions – a vignette-based experiment