Abstract
This article will introduce the minimum requirement and the statue quo reference points into newsvendor model. Then the problem of decision bias can be well explained through researching multiple reference points. Many papers confirm the loss aversion is one of the important factors in the decision-making bias and plays an important role in ordering decisions. We propose crossing failure is more important than the loss aversion depending on the decision maker’s degree of the aversion. In this note, we present situation where minimum requirement and status quo reference point impact the order decision and give a breakthrough in the study of multiple reference points of newsvendor problem.
Highlights
The traditional newsvendor model is a basic model to analysis inventory problems [1]
The newsvendor model based on MR and SQ reference points extends the conception of loss aversion which further elaborates how crossing failure and loss aversion cause the decision bias in newsvendor problem of multi-reference point
Comparing to the traditional newsvendor model, which shows optimal order quantity always decreasing in w and increasing in p, the newsvendor model based on MR and SQ reference points gives more conditions
Summary
The traditional newsvendor model is a basic model to analysis inventory problems [1]. As far as we know, Wang and Webster [6] use a conception of loss-aversion to illustrate decision bias Their model is based on the status quo reference point. Our main aim is to introduce multi-reference point newsvendor model that analyze order decision bias. The newsvendor model based on MR and SQ reference points extends the conception of loss aversion which further elaborates how crossing failure and loss aversion cause the decision bias in newsvendor problem of multi-reference point. On the basis of experiment and theory, we introduce multi-reference point theory of behavioral science into newsvendor model so that we can further quantify the problem of order decision bias.
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