The loss-averse newsvendor problem

Charles X. Wang, Scott Webster

Research output: Contribution to journalArticle

207 Citations (Scopus)

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 languageEnglish (US)
Pages (from-to)93-105
Number of pages13
JournalOmega
Volume37
Issue number1
DOIs
StatePublished - Feb 2009
Externally publishedYes

Fingerprint

Newsvendor
Newsvendor problem
Newsvendor model
Order quantity
Loss aversion
Retail prices
Costs
Decision making
Shortage
Risk neutrality
Managers
Wholesale prices

Keywords

  • Inventory
  • Loss aversion
  • Newsvendor model

ASJC Scopus subject areas

  • Strategy and Management
  • Information Systems and Management
  • Management Science and Operations Research

Cite this

The loss-averse newsvendor problem. / Wang, Charles X.; Webster, Scott.

In: Omega, Vol. 37, No. 1, 02.2009, p. 93-105.

Research output: Contribution to journalArticle

Wang, Charles X. ; Webster, Scott. / The loss-averse newsvendor problem. In: Omega. 2009 ; Vol. 37, No. 1. pp. 93-105.
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