Download This PaperA Note on 'Prospect Theory and the Newsvendor Problem'
6 Pages Posted: 2 May 2014 Last revised: 22 May 2014
Date Written: May 22, 2014
Abstract
Based on the newsvendor setting, many behavioral models are proposed to predict biases of decision makers in inventory management. Recently, Nagarajan and Shechter claimed that prospect theory cannot explain the consistent empirical findings (Management Science, 2014, P.1057-1062). However, it is noticed that their model is a special case of the general prospect theory model. In this note, we show that the general prospect theory model may be powerful in predicting the preferences of decision makers in inventory management.
Keywords: Newsvendor problem; prospect theory.
Suggested Citation: Suggested Citation
Zhao, Xiaobo and Geng, Wei, A Note on 'Prospect Theory and the Newsvendor Problem' (May 22, 2014). Available at SSRN: https://ssrn.com/abstract=2431140 or http://dx.doi.org/10.2139/ssrn.2431140
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