Reference Dependence in Multilocation Newsvendor Models: A Structural Analysis

• Published in: Management science Vol. 56; no. 11; pp. 1891 - 1910
• Main Authors: Ho, Teck-Hua, Lim, Noah, Cui, Tony Haitao
• Format: Journal Article
• Language: English
• Published: Hanover, MD INFORMS 01.11.2010; Institute for Operations Research and the Management Sciences
• Series: Management Science
• Subjects: Applied sciences; Behavior; Behavior modeling; behavioral operations management; Behavioural psychology; Bias; Business orders; Cash; Cost estimation models; Costs; Economics; Estimating techniques; Exact sciences and technology; experimental economics; Experiments; General aspects; Human behaviour; Inventories; Inventory control, production control. Distribution; Inventory management; Management science; Mathematical programming; Modeling; Motivation; multilocation inventory system; newsvendor; Operational research and scientific management; Operational research. Management science; Operations management; Parametric models; Preferences; Profit; Profit margins; Psychology; Queuing theory. Traffic theory; Rationality; Regression analysis; Risk; Structural analysis; Studies; Unit costs; Costs; Bias; Psychology; Newsboy problem; Modeling; Mutualism; Location problem; Economy; Behavioral analysis; Dependence; Ordering; Inventory control; Profit; Call centres; Localization; newsvendor; Empirical method; Minimization; Financial incentives; Production management; Preference; behavioral operations management; Structural model; experimental economics; Stockout; Risk management; multilocation inventory system

We propose a behavioral theory to predict actual ordering behavior in multilocation inventory systems. The theory rests on a well-known stylized fact of human behavior: people's preferences are reference dependent. We incorporate reference dependence into the newsvendor framework by assuming th...