A Bayesian approach to determine the value of information in the newsboy problem
AbstractThe potential benefits of demand forecasting in a newsboy problem are to decrease the risk of overstocking or shortage, but forecasting is usually not free. In this paper, a model to help the decision-maker in a newsboy problem to assess the value of information is presented. First, two cases on available demand information are considered to develop an upper bound of the cost that the decision-maker would spend on forecasting. Then, a Bayesian approach to forecasting is proposed and EVAI, the expected value of additional information, is computed to help the decision-maker in deciding whether to use the extra information. Finally, the relationship between the EVAI and model parameters is discussed.
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Bibliographic InfoArticle provided by Elsevier in its journal International Journal of Production Economics.
Volume (Year): 112 (2008)
Issue (Month): 1 (March)
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Web page: http://www.elsevier.com/locate/ijpe
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