Solving Newsvendor Problems with the Focus Theory of Choice

18 Pages Posted: 30 Apr 2021

See all articles by Xide Zhu

Xide Zhu

School of Management, Shanghai University; School of Management, Shanghai University

Kevin W. Li

Odette School of Business, University of Windsor

Peijun Guo

Yokohama National University - Faculty of Business Administration

Date Written: April 22, 2021

Abstract

We propose a new newsvendor model with the focus theory of choice. Instead of calculating the expected utility, the model conceives that a retailer evaluates each order quantity by examining the most salient demand for him/her. The proposed model is a bilevel optimization problem with maximin upper and lower level programs that are nonsmooth. We derive the optimal order quantity and obtain the properties of the optimal solution. The proposed framework provides a new vehicle to handle newsvendor problems.

Keywords: Newsvendor model, focus theory of choice, expected utility, salience, bilevel optimization

Suggested Citation

Zhu, Xide and Zhu, Xide and Li, Kevin W. and Guo, Peijun, Solving Newsvendor Problems with the Focus Theory of Choice (April 22, 2021). Available at SSRN: https://ssrn.com/abstract=3831751 or http://dx.doi.org/10.2139/ssrn.3831751

Xide Zhu

School of Management, Shanghai University ( email )

149 Yanchang Road
SHANGDA ROAD 99
Shanghai 200444, SHANGHAI 200444
China

School of Management, Shanghai University ( email )

149 Yanchang Road
SHANGDA ROAD 99
Shanghai 200444, SHANGHAI 200444
China

Kevin W. Li

Odette School of Business, University of Windsor ( email )

401 Sunset Avenue
Windsor, Ontario N9B 3P4
Canada

Peijun Guo (Contact Author)

Yokohama National University - Faculty of Business Administration ( email )

79-4 Tokiwa-dai Hodogaya-ku
Yokohama, Kanagawa, 2408501
Japan

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