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Opportunity Loss Minimization and Newsvendor Behavior
Joint Authors
Yan, Hong
Chan, Chi Kin
Xu, Xinsheng
Source
Discrete Dynamics in Nature and Society
Issue
Vol. 2017, Issue 2017 (31 Dec. 2017), pp.1-11, 11 p.
Publisher
Hindawi Publishing Corporation
Publication Date
2017-04-13
Country of Publication
Egypt
No. of Pages
11
Main Subjects
Abstract EN
To study the decision bias in newsvendor behavior, this paper introduces an opportunity loss minimization criterion into the newsvendor model with backordering.
We apply the Conditional Value-at-Risk (CVaR) measure to hedge against the potential risks from newsvendor’s order decision.
We obtain the optimal order quantities for a newsvendor to minimize the expected opportunity loss and CVaR of opportunity loss.
It is proven that the newsvendor’s optimal order quantity is related to the density function of market demand when the newsvendor exhibits risk-averse preference, which is inconsistent with the results in Schweitzer and Cachon (2000).
The numerical example shows that the optimal order quantity that minimizes CVaR of opportunity loss is bigger than expected profit maximization (EPM) order quantity for high-profit products and smaller than EPM order quantity for low-profit products, which is different from the experimental results in Schweitzer and Cachon (2000).
A sensitivity analysis of changing the operation parameters of the two optimal order quantities is discussed.
Our results confirm that high return implies high risk, while low risk comes with low return.
Based on the results, some managerial insights are suggested for the risk management of the newsvendor model with backordering.
American Psychological Association (APA)
Xu, Xinsheng& Yan, Hong& Chan, Chi Kin. 2017. Opportunity Loss Minimization and Newsvendor Behavior. Discrete Dynamics in Nature and Society،Vol. 2017, no. 2017, pp.1-11.
https://search.emarefa.net/detail/BIM-1151312
Modern Language Association (MLA)
Xu, Xinsheng…[et al.]. Opportunity Loss Minimization and Newsvendor Behavior. Discrete Dynamics in Nature and Society No. 2017 (2017), pp.1-11.
https://search.emarefa.net/detail/BIM-1151312
American Medical Association (AMA)
Xu, Xinsheng& Yan, Hong& Chan, Chi Kin. Opportunity Loss Minimization and Newsvendor Behavior. Discrete Dynamics in Nature and Society. 2017. Vol. 2017, no. 2017, pp.1-11.
https://search.emarefa.net/detail/BIM-1151312
Data Type
Journal Articles
Language
English
Notes
Includes bibliographical references
Record ID
BIM-1151312