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.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 93-105 |
| Number of pages | 13 |
| Journal | Omega (United Kingdom) |
| Volume | 37 |
| Issue number | 1 |
| DOIs | |
| State | Published - Feb 2009 |
| Externally published | Yes |
Keywords
- Inventory
- Loss aversion
- Newsvendor model
ASJC Scopus subject areas
- Strategy and Management
- Management Science and Operations Research
- Information Systems and Management
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