Prospect Theory and the Newsvendor Problem

Mahesh Nagarajan () and Steven Shechter ()
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Mahesh Nagarajan: Sauder School of Business, University of British Columbia, Vancouver, British Columbia V6T 1Z2, Canada
Steven Shechter: Sauder School of Business, University of British Columbia, Vancouver, British Columbia V6T 1Z2, Canada

Management Science, 2014, vol. 60, issue 4, 1057-1062

Abstract: The newsvendor problem is a fundamental decision problem in operations management. Various independent experimental studies in laboratory settings have shown similar deviations from the theoretical optimal order quantity. We clarify that Prospect Theory, a prevalent framework for decision making under uncertainty, cannot explain the consistent empirical findings. This paper was accepted by Yossi Aviv, operations management.

Keywords: Prospect Theory; newsvendor problem; risk preference (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (30)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:60:y:2014:i:4:p:1057-1062

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