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Decision-Making and the Newsvendor Problem – An Experimental Study

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Author Info

  • Uri Ben-Zion

    ()
    (Dept. of Economics, Ben-Gurion University of the Negev, Israel)

  • Yuval Cohen

    ()
    (Department of Management and Economics, The Open University of Israel)

  • Ruth Peled

    ()
    ((M.A.), Student, Dept. of Economics, Ben-Gurion University of the Negev, Israel)

  • TAL SHAVIT

    ()
    (Department of Economics, Ben-Gurion University of the Negev, Israel)

Abstract

This paper investigates repetitive purchase decisions of perishable items in the face of uncertain demand (the newsvendor problem). The experimental design includes: high, or low profit levels; and uniform, or normal demand distributions. The results show that in all cases both learning and convergence occur and are effected by: (1) the mean demand; (2) the order-size of the maximal expected profit; and (3) the demand level of the immediately preceding round. In all cases of the experimental design, the purchase order converges to a value between the mean demand and the quantity for maximizing the expected profit.

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File URL: http://www.ec.bgu.ac.il/monaster/admin/papers/0711.pdf
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Bibliographic Info

Paper provided by Ben-Gurion University of the Negev, Department of Economics in its series Working Papers with number 0711.

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Length: 23pages
Date of creation: 2007
Date of revision:
Handle: RePEc:bgu:wpaper:0711

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Related research

Keywords: Inventory; Learning; Behavior; Management; Optimization;

References

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  1. Gary E. Bolton & Elena Katok, 2008. "Learning by Doing in the Newsvendor Problem: A Laboratory Investigation of the Role of Experience and Feedback," Manufacturing & Service Operations Management, INFORMS, vol. 10(3), pages 519-538, September.
  2. 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. Lisa Bruttel, 2013. "Is there an exclusionary effect of retroactive price reduction schemes?," TWI Research Paper Series 84, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
  2. Gary E Bolton & Axel Ockenfels & Ulrich Thonemann, 2008. "Managers and Students as Newsvendors - How Out-of-Task Experience Matters," Working Paper Series in Economics 39, University of Cologne, Department of Economics.
  3. Halkos, George & Kevork, Ilias, 2012. "The classical newsvendor model under normal demand with large coefficients of variation," MPRA Paper 40414, University Library of Munich, Germany.
  4. Nils Rudi & David Drake, 2009. "Observation bias: The impact of demand censoring on newsvendor level and adjustment behavior," Harvard Business School Working Papers 12-042, Harvard Business School, revised Dec 2011.
  5. Shen, Houcai & Pang, Zhan & Cheng, T.C.E., 2011. "The component procurement problem for the loss-averse manufacturer with spot purchase," International Journal of Production Economics, Elsevier, vol. 132(1), pages 146-153, July.
  6. Halkos, George & Kevork, Ilias, 2012. "Unbiased estimation of maximum expected profits in the Newsvendor Model: a case study analysis," MPRA Paper 40724, University Library of Munich, Germany.

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