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Little’s Law and Stock-Flow Performance

Little’s Law and Stock-Flow Performance

by | Aug 23, 2021

Understanding the mechanisms underlying stock-flows is fundamental in managing dynamic systems. Keeping stock-flow systems under control is a challenge faced in every aspect of life. The accumulation of greenhouse gases in the atmosphere and management of nonrenewable (such as fossil fuels and oil) and renewable (such as water) resources are examples of stock-flows with a critical global impact. However, as previous studies have shown, individuals often have difficulty understanding the mechanisms through which stock-flow systems work. This phenomenon is highly pervasive even among highly educated individuals and has been related to cognitive heuristics and biases. Analytical thinking has proved to positively influence stock-flow performance by encouraging to apply cognitive effort and override the heuristics and biases that lead to erroneous responses in these problems.

In this study, the effect of analytical thinking on stock-flow performance is examined further by testing the mediating effect of a novel concept entitled: “Little’s Law Understanding.” The current paper introduces this concept for the first time and examines its effect on stock-flow performance. Little’s Law is one of the fundamental laws of queueing systems. It links waiting time with the average number of items in a queue via the average arrival rate to the queueing system. Queueing systems are the embodiment of stock-flow mechanisms. Thus, Little’s Law understanding is critical in stock-flow performance, and its effect can mediate the relationship between analytical thinking and performance in stock-flow problems. To test this relationship, two empirical studies are designed and conducted that examine the relationship between analytical thinking as measured by cognitive reflection test (CRT), Little’s Law understanding, and stock-flow performance. The results supported our hypotheses in both studies. Analytical thinking had a positive effect on stock-flow performance. Little’s Law understanding partially mediated this effect.

This study has theoretical and practical implications. First, it contributes to the system dynamics literature because it introduces and measures the new concept of Little’s Law understanding as one of the underlying factors that can contribute to performance in dynamic systems. In addition, it provides a standard measure for assessing Little’s Law understanding based on the literature which can be easily administered for measuring people’s understanding of this basic law which has practical implications on performance in different dynamic contexts. While the law is generally considered to be intuitive, the results of this study indicate that it is not actually as simple and easy to understand as it is often assumed. In fact, the average score in Little’s Law understanding was 1.39 (below the average value of 2 out of 4) with a range of 0 to 4. This result is noteworthy because the participants were students with rigorous quantitative and mathematical backgrounds.

Second, analytical thinking had a significant positive effect on both Little’s Law understanding and stock-flow performance. This result is consistent with the results of previous studies which indicate that analytical thinking has a positive effect on performance in tasks where deliberative and effortful thinking is required. Finally, comparing the direct and indirect effect of analytical thinking on performance shows that both analytical thinking and Little’s Law understanding have significant and separate effects on stock-flow performance. However, the total effect of analytical thinking on performance is stronger than the direct effect of Little’s Law understanding. Based on these results, it is suggested that companies include questions related to both cognitive abilities (e.g., CRT) and Little’s Law understanding in their assessment batteries when they hire individuals for jobs involving dynamic contexts such as strategic management, operations and supply chain management, or inventory management, or when they evaluate performance in such positions. However, higher weights should be given to cognitive abilities test scores due to their stronger effect on performance.



Hendijani is autor of ” Analytical thinking, Little’s Law understanding, and stock-flow performance: two empirical studies”, available on the System Dynamics Review.



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