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Decision-Making and the Newsvendor Problem – An Experimental Study

  • 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)

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://in.bgu.ac.il/en/humsos/Econ/Working/0711.pdf
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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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Web page: http://www.bgu.ac.il/econ

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  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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