Coping with Loss Aversion in the Newsvendor Model
Joint Authors
Source
Discrete Dynamics in Nature and Society
Issue
Vol. 2015, Issue 2015 (31 Dec. 2015), pp.1-11, 11 p.
Publisher
Hindawi Publishing Corporation
Publication Date
2015-05-18
Country of Publication
Egypt
No. of Pages
11
Main Subjects
Abstract EN
We introduce loss aversion into the decision framework of the newsvendor model.
By introducing the loss aversion coefficient λ, we propose a novel utility function for the loss-averse newsvendor.
First, we obtain the optimal order quantity to maximize the expected utility for the loss-averse newsvendor who is risk-neutral.
It is found that this optimal order quantity is smaller than the expected profit maximization order quantity in the classical newsvendor model, which may help to explain the decision bias in the classical newsvendor model.
Then, to reduce the risk which originates from the fluctuation in the market demand, we achieve the optimal order quantity to maximize CVaR about utility for the loss-averse newsvendor who is risk-averse.
We find that this optimal order quantity is smaller than the optimal order quantity to maximize the expected utility above and is decreasing in the confidence level α.
Further, it is proved that the expected utility under this optimal order quantity is decreasing in the confidence level α, which verifies that low risk implies low return.
Finally, a numerical example is given to illustrate the obtained results and some management insights are suggested for the loss-averse newsvendor model.
American Psychological Association (APA)
Sun, Jianwu& Xu, Xinsheng. 2015. Coping with Loss Aversion in the Newsvendor Model. Discrete Dynamics in Nature and Society،Vol. 2015, no. 2015, pp.1-11.
https://search.emarefa.net/detail/BIM-1060792
Modern Language Association (MLA)
Sun, Jianwu& Xu, Xinsheng. Coping with Loss Aversion in the Newsvendor Model. Discrete Dynamics in Nature and Society No. 2015 (2015), pp.1-11.
https://search.emarefa.net/detail/BIM-1060792
American Medical Association (AMA)
Sun, Jianwu& Xu, Xinsheng. Coping with Loss Aversion in the Newsvendor Model. Discrete Dynamics in Nature and Society. 2015. Vol. 2015, no. 2015, pp.1-11.
https://search.emarefa.net/detail/BIM-1060792
Data Type
Journal Articles
Language
English
Notes
Includes bibliographical references
Record ID
BIM-1060792