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Risk preferences and robust inventory decisions

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  • Jammernegg, Werner
  • Kischka, Peter

Abstract

Recently in inventory management instead of maximizing expected profit or minimizing expected cost risk-averse objective functions have been used for determining the optimal order quantity. We use the well-known newsvendor model to determine the optimal order quantity for an objective function with two risk parameters, which can describe risk-neutral, risk-averse as well as risk-taking behaviour of the inventory manager. This approach can also be applied to situations in which the demand distribution cannot be specified uniquely. We consider robust optimization procedures--maximin and minimax regret--to determine optimal order quantities if the set of potential demand variables can be partially ordered by stochastic dominance rules.

Suggested Citation

  • Jammernegg, Werner & Kischka, Peter, 2009. "Risk preferences and robust inventory decisions," International Journal of Production Economics, Elsevier, vol. 118(1), pages 269-274, March.
    • Handle: RePEc:eee:proeco:v:118:y:2009:i:1:p:269-274
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    References listed on IDEAS

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    1. Khouja, Moutaz, 1999. "The single-period (news-vendor) problem: literature review and suggestions for future research," Omega, Elsevier, vol. 27(5), pages 537-553, October.
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    5. Louis Eeckhoudt & Christian Gollier & Harris Schlesinger, 1995. "The Risk-Averse (and Prudent) Newsboy," Management Science, INFORMS, vol. 41(5), pages 786-794, May.
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    8. Maurice E. Schweitzer & Gérard P. Cachon, 2000. "Decision Bias in the Newsvendor Problem with a Known Demand Distribution: Experimental Evidence," Management Science, INFORMS, vol. 46(3), pages 404-420, March.
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    Citations

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    Cited by:

    1. Qiu, Ruozhen & Shang, Jennifer & Huang, Xiaoyuan, 2014. "Robust inventory decision under distribution uncertainty: A CVaR-based optimization approach," International Journal of Production Economics, Elsevier, vol. 153(C), pages 13-23.
    2. Wang, Wei & Lan, Yingjie, 2022. "Robust one-way trading with limited number of transactions and heuristics for fixed transaction costs," International Journal of Production Economics, Elsevier, vol. 247(C).
    3. Li, Zhaolin & Fu, Qi (Grace), 2017. "Robust inventory management with stock-out substitution," International Journal of Production Economics, Elsevier, vol. 193(C), pages 813-826.
    4. Jin, Yi & Zeng, Zhixiong, 2016. "Risk, risk aversion, and a finance-augmented neoclassical economic model of production," International Journal of Production Economics, Elsevier, vol. 176(C), pages 82-91.
    5. Ancarani, A. & Di Mauro, C. & D'Urso, D., 2013. "A human experiment on inventory decisions under supply uncertainty," International Journal of Production Economics, Elsevier, vol. 142(1), pages 61-73.
    6. Mario Brandtner, 2016. "Spektrale Risikomaße: Konzeption, betriebswirtschaftliche Anwendungen und Fallstricke," Management Review Quarterly, Springer, vol. 66(2), pages 75-115, April.
    7. Edirisinghe, Chanaka & Atkins, Derek, 2017. "Lower bounding inventory allocations for risk pooling in two-echelon supply chains," International Journal of Production Economics, Elsevier, vol. 187(C), pages 159-167.
    8. Halkos, George & Kevork, Ilias, 2012. "Validity and precision of estimates in the classical newsvendor model with exponential and rayleigh demand," MPRA Paper 36460, University Library of Munich, Germany.
    9. Halkos, George & Kevork, Ilias, 2012. "Evaluating alternative estimators for optimal order quantities in the newsvendor model with skewed demand," MPRA Paper 36205, University Library of Munich, Germany.

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