The Expectation-Based Loss-Averse Newsvendor

Fabian Herweg ()

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: We modify the classic single-period inventory management problem by assuming that the newsvendor is expectation-based loss averse according to Köszegi and Rabin (2006, 2007). Expectation-based loss aversion leads to an endogenous psychological cost of leftovers as well as stockouts. If there are no monetary stockout costs, then the loss-averse newsvendor orders a quantity lower than the quantity ordered by a profit-maximizing newsvendor. If there are positive monetary costs associated with stockouts, then the loss-averse newsvendor places suboptimal orders, which can be either too high or too low.

Keywords: behavioral (search for similar items in EconPapers)
Date: 2012-10-01
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://epub.ub.uni-muenchen.de/14061/1/389.pdf (application/pdf)

Related works:
Journal Article: The expectation-based loss-averse newsvendor (2013)
Working Paper: The expectation-based loss-averse newsvendor (2013)
Working Paper: The Expectation-Based Loss-Averse Newsvendor (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:trf:wpaper:389

Access Statistics for this paper

More papers in Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich Geschwister-Scholl-Platz 1, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Tamilla Benkelberg ().