A Relation Between Decision Making Penalty and Simulation Sample Size for Inventory Systems

Michael E. Brenner
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Michael E. Brenner: Bell Telephone Laboratories, Inc., Holmdel, New Jersey

Operations Research, 1965, vol. 13, issue 3, 433-443

Abstract: The paper contains results from experiments in which two inventory models, with known analytical solutions have been simulated to learn about simulation. The author suggests a relation between the simulation sample size and the economic penalty for an incorrect decision from inaccuracy in the simulated information. The relation is W̄ = A / n k , where W̄ is the average penalty in dollars, n is the sample size, and A and k are parameters obtained from a regression analysis. A series of results are reported with values given for A and K . The values of A vary monotonically with some of the inventory parameters. The values of k have moderate variability. It is hoped that the ideas suggested and the result presented may be helpful to others conducting experiments to learn more about simulation.

Date: 1965
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Persistent link: https://EconPapers.repec.org/RePEc:inm:oropre:v:13:y:1965:i:3:p:433-443

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