Dynamics of Cognitive Heterogeneity: Investigating Behavioral Biases in Multi-Stage Supply Chains with LLM-Based Simulation

TL;DR

This paper uses Large Language Models to simulate multi-stage supply chains, revealing how cognitive heterogeneity affects efficiency and how information sharing can mitigate negative behaviors.

Contribution

It introduces a scalable LLM-based simulation framework grounded in Hierarchical Reasoning to analyze cognitive diversity in supply chain dynamics.

Findings

Agents show myopic and self-interested behaviors that worsen inefficiencies.

Information sharing reduces adverse effects of cognitive heterogeneity.

LLM-based simulation extends traditional behavioral research methods.

Abstract

Modeling coordination among generative agents in complex multi-round decision-making presents a core challenge for AI and operations management. Although behavioral experiments have revealed cognitive biases behind supply chain inefficiencies, traditional methods face scalability and control limitations. We introduce a scalable experimental paradigm using Large Language Models (LLMs) to simulate multi-stage supply chain dynamics. Grounded in a Hierarchical Reasoning Framework, this study specifically analyzes the impact of cognitive heterogeneity on agent interactions. Unlike prior homogeneous settings, we employ DeepSeek and GPT agents to systematically vary reasoning sophistication across supply chain tiers. Through rigorously replicated and statistically validated simulations, we investigate how this cognitive diversity influences collective outcomes. Results indicate that agents exhibit myopic and self-interested behaviors that exacerbate systemic inefficiencies. However, we demonstrate that information sharing effectively mitigates these adverse effects. Our findings extend traditional behavioral methods and offer new insights into the dynamics of AI-enabled organizations. This work underscores both the potential and limitations of LLM-based agents as proxies for human decision-making in complex operational environments.