Optimal ordering policy in a newsvendor problem: A behavioral study

In newsvendor problem (NVP), a decision maker should order before selling season when the balance of ordering is required under demand uncertainty. The different extensions of NVP in academy and practice assume that the decision makers order at a familiar optimal ordering level so called critical ratio. Here, we design an experiment based on behavioral aspects and show that in reality, people deviate from optimal ordering levels. Our findings show that the deviations can be interpreted under risk-aversion in particular stock-out aversion of the subjects. Moreover, we observe that these deviations are not dependent to different optimal levels which require more experiment design in order to describe this behavioral phenomenon.

Keywords:

Behavioral Operations Management (BOM) , Newsvendor Problem (NVP) , Inventory Control , Experimental study