Risk preferences and robust inventory decisions

Werner Jammernegg and Peter Kischka

International Journal of Production Economics, 2009, vol. 118, issue 1, 269-274

Abstract: Recently in inventory management instead of maximizing expected profit or minimizing expected cost risk-averse objective functions have been used for determining the optimal order quantity. We use the well-known newsvendor model to determine the optimal order quantity for an objective function with two risk parameters, which can describe risk-neutral, risk-averse as well as risk-taking behaviour of the inventory manager. This approach can also be applied to situations in which the demand distribution cannot be specified uniquely. We consider robust optimization procedures--maximin and minimax regret--to determine optimal order quantities if the set of potential demand variables can be partially ordered by stochastic dominance rules.

Keywords: Risk; preferences; Robust; decision; making; Newsvendor; model (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:118:y:2009:i:1:p:269-274

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