Abstract
We modify the classic single-period inventory management problem by assuming that the newsvendor is expectation-based loss averse according to Kőszegi and Rabin (2006, 2007). We show that the expectation-based loss-averse newsvendor orders less than the profit-maximizing quantity. Moreover, the order placed by the expectation-based loss-averse newsvendor features plausible comparative statics of cost and price changes.
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