Risk Aversion in Inventory Management

Chen, Xin; Sim, Melvyn; Simchi‐Levi, David; Sun, Peng

doi:10.1287/opre.1070.0429

Cited by 300 publications

(209 citation statements)

References 30 publications

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“…The exponential value function could be alternatively interpreted as the exponential utility function of a risk-averse manager-owner, as is commonly done in the operations literature (Bouakiz and Sobel 1992, Van Mieghem 2007, Chen et al 2007. Assuming risk neutrality, however, makes the model applicable to publicly held corporations.…”

Section: Discussion and Limitationsmentioning

confidence: 99%

“…Caldentey and Haugh (2006) extend the work of Gaur and Seshadri by allowing continuous trading in the financial market. Chen et al (2007) incorporate risk aversion and financial hedging in multiperiod inventory and pricing models. Zhou and Rudi (2007) study the pricing of over-the-counter financial hedging contracts used by firms to protect against demand risk by modeling the interaction between a hedging firm and the contract issuer.…”

Section: Relation To the Literaturementioning

confidence: 99%

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Operational Flexibility and Financial Hedging: Complements or Substitutes?

2010

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W e consider a firm that invests in capacity under demand uncertainty and thus faces two related but distinct types of risk: mismatch between capacity and demand and profit variability. Whereas mismatch risk can be mitigated with greater operational flexibility, profit variability can be reduced through financial hedging. We show that the relationship between these two risk mitigating strategies depends on the type of flexibility: Product flexibility and financial hedging tend to be complements (substitutes)-i.e., product flexibility tends to increase (decrease) the value of financial hedging, and, vice versa, financial hedging tends to increase (decrease) the value of product flexibility-when product demands are positively (negatively) correlated. In contrast to product flexibility, postponement flexibility is a substitute to financial hedging as intuitively expected. Although our analytical results assume perfect flexibility and perfect hedging and rely on a linear approximation of the value of hedging, we validate their robustness in an extensive numerical study.

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Section: Discussion and Limitationsmentioning

confidence: 99%

Section: Relation To the Literaturementioning

confidence: 99%

Operational Flexibility and Financial Hedging: Complements or Substitutes?

2010

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“…Several researchers have studied multi-period and multi-product newsvendor problem under risk aversion. Chen et al (2007) examined structural analysis of optimal policy inventory policies and computationally demonstrated that the optimal policy is relatively not sensitive to the small changes in risk aversion level of decision maker. showed that for a portfolio of identical products with independent demands, the risk aversion results in decreased orders.…”

Section: Risk Aversionmentioning

confidence: 99%

A Review of Behavioral Decision Making in the Newsvendor Problem

Sharma

Nandi

2018

OSCM: An Int. Journal

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Schweitzer and Cachon (2000) demonstrated that choices of decision-maker in the newsvendor problem setting systematically deviate from those that maximize their expected profit. Since then, a large body of empirical and theoretical studies has been published to describe the newsvendor decisionmaking behavior. To establish further, the purpose of this paper is twofold. First, it identifies the various behavioral theories and biases that explain the newsvendor behavior by employing a systematic literature review of peer-reviewed articles published in leading journals from 2000 to 2017. Second, it classifies and analyzes the identified literature from three dimensions of human behavior namely: individual decision making biases, social preferences, and cultural aspects. Our findings from the review show that research has primarily emphasized individual decision making biases while social and cultural aspects lack analysis and are worthy of investigation. Finally, we discuss some directions for future research, followed by the conclusion and limitations of this review.

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“…are known to have nicely structured optimal policies under risk-neutral assumptions. Recently, Chen, et al [83] showed that good structures in optimal policies still exist in risk-averse inventory control and other models. Work is needed to understand the 27 The author thanks Michael Littman, David Madigan, and Robert Schapire for ideas about algorithmic decision theory that underlie this introductory paragraph and, indeed, the entire section.…”

Section: Sequential Decision Making Models and Algorithms 28mentioning

confidence: 99%

Computer science and decision theory

Roberts

2008

Ann Oper Res

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This paper reviews applications in computer science that decision theorists have addressed for years, discusses the requirements posed by these applications that place great strain on decision theory/social science methods, and explores applications in the social and decision sciences of newer decision-theoretic methods developed with computer science applications in mind. The paper deals with the relation between computer science and decision-theoretic methods of consensus, with the relation between computer science and game theory and decisions, and with "algorithmic decision theory."

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Risk Aversion in Inventory Management

Cited by 300 publications

References 30 publications

Operational Flexibility and Financial Hedging: Complements or Substitutes?

Operational Flexibility and Financial Hedging: Complements or Substitutes?

A Review of Behavioral Decision Making in the Newsvendor Problem

Computer science and decision theory

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