The loss-averse newsvendor problem

Charles X. Wang, Scott Webster

Research output: Contribution to journalArticle

219 Scopus citations

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 1 2009
Externally publishedYes

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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