The loss-averse newsvendor problem☆

Mean–variance analysis of the newsvendor model with stockout cost☆

“…Our study is most related to [18], but with several major differences. Both studies consider the newsvendor problem with stockout cost based upon objectives different from profit maximization and find some results different from the risk-neutral newsvendor model.…”

“…In view of this, a number of papers have been devoted to risk analysis of supply chain models. Recent studies include, but are not limited to, those by Lau [13], Bouakiz and Sobel [5], Choi et al [9], Eeckhoudt et al [10], Lau and Lau [14], Agrawal and Seshadri [1,2], Chen and Federgruen [7], Buzacott et al [6], Chen et al [8], Wang and Webster [18], Wu et al [19], Bogataj and Bogataj [4], He and Zhang [11], Sounderpandian, Prasad and Madan [16], and Agrawal and Ganeshan [3]. For an extensive review of the literature on supply chain risk management or extension of different objectives on newsvendor problem, the reader is referred to Khouja [12], Tang [17] and Wu et al [20].…”

“…Both studies consider the newsvendor problem with stockout cost based upon objectives different from profit maximization and find some results different from the risk-neutral newsvendor model. The significant differences are: (1) Wang and Webster [18] used loss aversion to model the newsvendor problem, while we use mean-variance tradeoff. Loss aversion belongs to a class of utility function, while mean-variance tradeoff belongs to the return-risk framework.…”

“…Second, return-risk models usually have a much more intuitive explanation than the utility maximization approach. Here we must point out that, unlike many other utility functions, the loss aversion used in [18] is also intuitively appealing. (2) Wang and Webster [18] studied the risk-averse newsvendor problem within the loss aversion framework, while our paper is motivated mainly from previous studies.…”

The newsvendor problem: Review and directions for future research

“…Wang and Webster [47] examined the ordering policy of a loss-averse newsvendor. They used the same utility function to describe the loss-aversion preference as in Schweitzer and Cachon , where I is the feasible interval for demand x and λ ≥ 1 is the degree of loss aversion.…”