The loss-averse newsvendor model with backordering

Xinsheng Xu, Hongwei Wang, Chuangyin Dang, Ping Ji

Research output: Journal article publicationJournal articleAcademic researchpeer-review

23 Citations (Scopus)

Abstract

In this paper, we study the optimal order quantity in the loss-averse newsvendor model with backordering. We first obtain the optimal order quantity to maximize the expected utility. To hedge against the risk arising from the uncertainty of market demand, we introduce the Conditional Value-at-Risk (CVaR) measure and derive the optimal order quantity to maximize the CVaR objective about utility. It is found that the optimal order quantity with the CVaR objective is decreasing in the confidence level, and thus is smaller than the optimal order quantity to maximize the expected utility. It is proved that under the optimal order quantity with the CVaR objective, the loss-averse newsvendor's expected utility is decreasing in the confidence level. It further confirms that high risk implies high return and low risk comes with low return.
Original languageEnglish
Pages (from-to)1-10
Number of pages10
JournalInternational Journal of Production Economics
Volume188
DOIs
Publication statusPublished - 1 Jun 2017

Keywords

  • Backorder
  • Conditional Value-at-Risk
  • Inventory control
  • Lose-averse

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering

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