A Bayesian approach to determine the value of information in the newsboy problem
The 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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- Hill, Roger M., 1997. "Applying Bayesian methodology with a uniform prior to the single period inventory model," European Journal of Operational Research, Elsevier, vol. 98(3), pages 555-562, May.
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- Mostard, Julien & de Koster, Rene & Teunter, Ruud, 2005. "The distribution-free newsboy problem with resalable returns," International Journal of Production Economics, Elsevier, vol. 97(3), pages 329-342, September.
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