is Professor/Associate Dean at the University of Wyoming. He holds a PhD from the University of Virginia. He has received several Outstanding Teaching Awards and has also written a best-selling textbook, Decision Modeling with Microsoft Excel. He has published 20 scholarly articles and has consulted for many major global corporations.

Correspondence: Larry R Weatherford, College of Business, University of Wyoming, Department 3275, 1000 E. University Avenue, Laramie, WY 82071, USA Tel: +1 307 766 3639; Fax: +1 307 766 4028; Email: lrw@uwyo.edu

Revised 7 April 2004.

Abstract

An assumption of risk-neutrality lies at the heart of the standard algorithm for leg inventory optimisation (EMSR). This paper examines how to modify EMSR scientifically to account for different risk preferences (eg risk aversion). This new approach is called expected marginal seat utility (EMSU). A comparison is made between the differences in booking limits that are generated by the different risk preferences. Simulation analysis is used to show what the differences in expected revenues and expected utilities are between the two methods. The results show that switching to EMSU in cases of risk aversion can increase expected utility by 1.6–4 per cent.