The newsvendor problem with unknown distribution

U Benzion, Y Cohen and Tal Shavit ()
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U Benzion: Ben-Gurion University of the Negev
Y Cohen: The Open University of Israel

Journal of the Operational Research Society, 2010, vol. 61, issue 6, 1022-1031

Abstract: Abstract Newsvendor theory assumes that the decision-maker faces a known distribution. But in real-life situations, demand distribution is not always known. In the experimental study which this paper presents, half of the participants assuming the newsvendor role were unaware of the underlying demand distribution, while the other half knew the demand distribution. Participants had to decide how many papers to order each day (for 100 days). The experimental findings indicate that subjects who know the demand distribution behave differently to those who do not. However, interestingly enough, knowing the demand distribution does not necessarily lead the subject closer to the optimal solution or improve profits. It was found that supply surplus at a certain period strongly affects the order quantity towards the following period, despite the knowledge of the demand distribution.

Keywords: behavioural operation; newsvendor problem; learning; demand distribution; purchase decision (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (7)

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DOI: 10.1057/jors.2009.56

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