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Describing decision bias in the newsvendor problem: A prospect theory model
Published in Elsevier Ltd
2019
Volume: 82
   
Pages: 132 - 141
Abstract
In the newsvendor setting, we consider a prospect theory model with a stochastic-subjective reference point. The reference point is based on the pay-offs corresponding to the extreme values of demand; and, is influenced by the perception of costs associated with understocking and overstocking, and the pessimism level of the decision maker. Our prospect theory model describes the recent observations in the newsvendor experiments—the non-linear ordering behavior with respect to the profit margin and behavior at the extreme profit margins, in addition to the pull-to-center effect and asymmetry in ordering. © 2017 Elsevier Ltd
About the journal
JournalData powered by TypesetOmega (United Kingdom)
PublisherData powered by TypesetElsevier Ltd
ISSN03050483
Open AccessNo
Concepts (5)
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    Behavior
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    Perception
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    PESSIMISM
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    Profit
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    Stochastic model