Would a risk-averse newsvendor order less at a higher selling price?

Wang, Charles X.; Webster, Scott; Suresh, Nallan C.

doi:10.1016/j.ejor.2008.04.002

Cited by 107 publications

(39 citation statements)

References 23 publications

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“…With the newsgirl making a decision under uncertainty her behavior might be driven by risk preferences (Eeckhouldt, Gollier, and Schlesinger, 1995). Modeling the newsgirl's preferences based on expected utility theory (EUT), however, often leads to implausible comparative statics, e.g., the order quantity decreases if the retail price increases (Wang, Webster, and Suresh, 2009).…”

Section: Introductionmentioning

confidence: 99%

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The expectation-based loss-averse newsvendor

Herweg

2013

Economics Letters

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Abstract. We modify the classic single-period inventory management problem by assuming that the newsvendor is expectation-based loss averse according to Kőszegi andRabin (2006, 2007). Expectation-based loss aversion leads to an endogenous psychological cost of leftovers as well as stockouts. If there are no monetary stockout costs, then the loss-averse newsvendor orders a quantity lower than the quantity ordered by a profit-maximizing newsvendor. If there are positive monetary costs associated with stockouts, then the loss-averse newsvendor places suboptimal orders, which can be either too high or too low.

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Section: Introductionmentioning

confidence: 99%

“…Intuitive comparative statics can be obtained when assuming decreasing partial relative risk aversion. Wang, Webster, and Suresh (2009) not only show that the order placed by a risk-averse newsvendor often decreases in the retail price but also that it can become arbitrarily small if the retail price is sufficiently high.…”

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confidence: 99%

The expectation-based loss-averse newsvendor

Herweg

2013

Economics Letters

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“…Among such authors are Lau [11], Eeckhoudt [12] Keren and Pliskin [13]. Wang and Webster [14], Wang et al, [15]. These models have sometimes been called as risk-averse, loss-averse, etc., NVP, dependent on the properties of the utility function.…”

Section: Nvp Models Differing In the Objective Functionmentioning

confidence: 99%

The Median Solution of the Newsvendor Problem and Some Observations

Sinha¹

2015

Management and Production Engineering Review

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We consider the median solution of the Newsvendor Problem. Some properties of such a solution are shown through a theoretical analysis and a numerical experiment. Sometimes, though not often, median solution may be better than solutions maximizing expected profit, or maximizing minimum possible, over distribution with the same average and standard deviation, expected profit, according to some criteria. We discuss the practical suitability of the objective function set and the solution derived, for the Newsvendor Problem, and other such random optimization problems.

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“…This phenomenon represents a discontinuity in their utility function (Berkelaar et al, 2004), graphically expressed as an abrupt change in the slope of the utility function at the reference point (Wang et al, 2009) which distinguishes gains from losses It also signifies that the utility function is steeper for losses than for gains, i.e. the disutility that one experiences in losing money is greater than the utility associated with gaining the same amount.…”

Section: Loss-averse Human Behaviourmentioning

confidence: 99%

Econometric Modelling of Risk Adverse Behaviours of Entrepreneurs in the Provision of House Fittings in China

2012

SSRN Journal

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Entrepreneurs have always born the risk of running their business. They reap a profit in return for their risk taking and work. Housing developers are no different. In many countries, such as Australia, the United Kingdom and the United States, they interpret the tastes of the buyers and provide the dwellings they develop with basic fittings such as floor and wall coverings, bathroom fittings and kitchen cupboards. In mainland China, however, in most of the developments, units or houses are sold without floor or wall coverings, kitchen or bathroom fittings. What is the motive behind this choice? This paper analyses the factors affecting housing developers' decisions to provide fittings based on 1701 housing developments in Hangzhou, Chongqing and Hangzhou using a Probit model. The results show that developers build a higher proportion of bare units in mainland China when: 1) there is shortage of housing; 2) land costs are high so that the comparative costs of providing fittings become relatively low.

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Would a risk-averse newsvendor order less at a higher selling price?

Cited by 107 publications

References 23 publications

The expectation-based loss-averse newsvendor

The expectation-based loss-averse newsvendor

The Median Solution of the Newsvendor Problem and Some Observations

Econometric Modelling of Risk Adverse Behaviours of Entrepreneurs in the Provision of House Fittings in China

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