Theoretical Paper
Journal of the Operational Research Society (2008) 59, 1281–1287. doi:10.1057/palgrave.jors.2602470 Published online 11 July 2007
Decision-making and the newsvendor problem: an experimental study
U Benzion1,2, Y Cohen3, R Peled1 and T Shavit3
- 1Ben-Gurion University of the Negev, Beer-Sheva, Israel
- 2The Max Stern Academic College of Emek Yezreel, Israel
- 3The Open University of Israel, Raanana, Israel
Correspondence: T Shavit, Department of Management and Economics, The Open University of Israel, 108 Rabutzki, PO Box 808, Raanana 43104, Israel. E-mail: shavittal@gmail.com
Received July 2006; Accepted April 2007; Published online 11 July 2007.
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.
Keywords:
inventory, learning, behaviour, management, optimization
