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Decision-Making and the Newsvendor Problem – An Experimental Study

Author

Listed:
  • 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.

Suggested Citation

  • Uri Ben-Zion & Yuval Cohen & Ruth Peled & TAL SHAVIT, 2007. "Decision-Making and the Newsvendor Problem – An Experimental Study," Working Papers 0711, Ben-Gurion University of the Negev, Department of Economics.
  • Handle: RePEc:bgu:wpaper:0711
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    File URL: http://in.bgu.ac.il/en/humsos/Econ/Workingpapers/0711.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. 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.
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    Citations

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    Cited by:

    1. Stewart Robinson & Stavrianna Dimitriou & Kathy Kotiadis, 2017. "Addressing the sample size problem in behavioural operational research: simulating the newsvendor problem," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 68(3), pages 253-268, March.
    2. repec:pal:jorsoc:v:61:y:2010:i:6:d:10.1057_jors.2009.56 is not listed on IDEAS
    3. Oberlaender, Michael & Dobhan, Alexander, 2014. "Behavioral analysis and adaptation of a negotiation based, quantitative planning approach for hybrid organizations," International Journal of Production Economics, Elsevier, vol. 157(C), pages 31-38.
    4. Elena Katok & Douglas Thomas & Andrew Davis, 2008. "Inventory Service-Level Agreements as Coordination Mechanisms: The Effect of Review Periods," Manufacturing & Service Operations Management, INFORMS, vol. 10(4), pages 609-624, June.
    5. Lisa Bruttel, 2013. "Is there an Exclusionary Effect of Retroactive Price Reduction Schemes?," Working Paper Series of the Department of Economics, University of Konstanz 2013-21, Department of Economics, University of Konstanz.
    6. Zhao, Yingshuai & Zhao, Xiaobo, 2015. "On human decision behavior in multi-echelon inventory management," International Journal of Production Economics, Elsevier, vol. 161(C), pages 116-128.
    7. Arshavskiy V. & Okulov V. & Smirnova A., 2014. "Newsvendor Problem Experiments: Riskiness of the Decisions and Learning by Experience," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 4(5), pages 137-150, May.
    8. Elena Katok & Diana Yan Wu, 2009. "Contracting in Supply Chains: A Laboratory Investigation," Management Science, INFORMS, vol. 55(12), pages 1953-1968, December.
    9. Andreas Fügener & Sebastian Schiffels & Rainer Kolisch, 2017. "Overutilization and underutilization of operating rooms - insights from behavioral health care operations management," Health Care Management Science, Springer, vol. 20(1), pages 115-128, March.
    10. 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.
    11. Gary E. Bolton & Axel Ockenfels & Ulrich W. Thonemann, 2012. "Managers and Students as Newsvendors," Management Science, INFORMS, vol. 58(12), pages 2225-2233, December.
    12. 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.
    13. repec:pal:jorsoc:v:68:y:2017:i:5:d:10.1057_s41274-016-0103-5 is not listed on IDEAS
    14. 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.
    15. 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.
    16. Yingshuai Zhao & Xiaobo Zhao & Zuo-Jun Max Shen, 2016. "On learning process of a newsvendor with censored demand information," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 67(9), pages 1200-1211, September.
    17. 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.
    18. 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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    Keywords

    Inventory; Learning; Behavior; Management; Optimization;

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