The Expectation-Based Loss-Averse Newsvendor

Discussion Papers in Economics from University of Munich, Department of Economics

Abstract: We modify the classic single-period inventory management problem by assuming that the newsvendor is expectation-based loss averse according to Koszegi and Rabin (2006, 2007). Expectation-based loss aversion leads to an endogenous psychological cost of leftovers as well as stockouts. If there are no monetary stockout costs, then the loss-averse newsvendor orders a quantity lower than the quantity ordered by a profit-maximizing newsvendor. If there are positive monetary costs associated with stockouts, then the loss-averse newsvendor places suboptimal orders, which can be either too high or too low.

Keywords: behavioral operations management; inventory decision; loss aversion; newsvendor (search for similar items in EconPapers)
Date: 2012-10
New Economics Papers: this item is included in nep-upt
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: The expectation-based loss-averse newsvendor (2013)
Working Paper: The expectation-based loss-averse newsvendor (2013)
Working Paper: The Expectation-Based Loss-Averse Newsvendor (2012)
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