Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5128471 | Operations Research Letters | 2017 | 8 Pages |
Abstract
The Anchoring and Insufficient Adjustment (AIA) bias has been observed in many newsvendor experiments, although a mathematical explanation for this behavior has previously eluded researchers. We show here that risk aversion coupled with an implicit shortage cost, both of which are well-known components of newsvendor decisions, comprehensively explains this behavior. We construct combinations of a risk-averse utility function and a shortage cost that explain the results from previously reported newsvendor experiments.
Related Topics
Physical Sciences and Engineering
Mathematics
Discrete Mathematics and Combinatorics
Authors
Srinagesh Gavirneni, Lawrence W. Robinson,