Risk-averse decision making in overbooking problem

H Xiong (), J Xie () and X Deng ()
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H Xiong: Tsinghua University
J Xie: Tsinghua University
X Deng: Tsinghua University

Journal of the Operational Research Society, 2011, vol. 62, issue 9, 1655-1665

Abstract: Abstract Traditional literature studying overbooking problems focuses on risk-neutral decision makers. In this paper, we propose a multi-period overbooking model incorporating risk-aversion and extend well-known structural results (the 3-region policy) under the risk-neutral case to the risk-averse one on the basis of an exponential utility function. We also show that the optimal policy for the risk-neutral decision maker can be obtained by letting the risk-aversion parameter approach to zero under the risk-averse case. Therefore, the extant results under the risk-neutral case can be interpreted as a special case of ours. We also investigate how the optimal policy changes with some cost parameters and the decision maker's degree of risk-aversion. Numerical results suggest that the optimal bounds in the 3-region policy may increase or decrease with the decision maker's degree of risk-aversion.

Keywords: revenue management; risk-averse; overbooking; marketing; inventory (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (3)

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DOI: 10.1057/jors.2010.130

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