The loss-averse newsvendor problem |
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Authors: | Charles X Wang Scott Webster |
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Institution: | 1. School of Management, State University of New York at Buffalo, Buffalo, NY 14260, USA;2. Whitman School of Management, Syracuse University, Syracuse, NY 13244, USA |
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Abstract: | Newsvendor models are widely used in the literature, and usually based upon the assumption of risk neutrality. This paper uses loss aversion to model manager's decision-making behavior in the single-period newsvendor problem. We find that if shortage cost is not negligible, then a loss-averse newsvendor may order more than a risk-neutral newsvendor. We also find that the loss-averse newsvendor's optimal order quantity may increase in wholesale price and decrease in retail price, which can never occur in the risk-neutral newsvendor model. |
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Keywords: | Inventory Loss aversion Newsvendor model |
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