The newsvendor problem with unknown distribution

U. Benzion, Y. Cohen, T. Shavit

Research output: Contribution to journalArticlepeer-review

26 Scopus citations

Abstract

Newsvendor theory assumes that the decision-maker faces a known distribution. But in real-life situations, demand distribution is not always known. In the experimental study which this paper presents, half of the participants assuming the newsvendor role were unaware of the underlying demand distribution, while the other half knew the demand distribution. Participants had to decide how many papers to order each day (for 100 days). The experimental findings indicate that subjects who know the demand distribution behave differently to those who do not. However, interestingly enough, knowing the demand distribution does not necessarily lead the subject closer to the optimal solution or improve profits. It was found that supply surplus at a certain period strongly affects the order quantity towards the following period, despite the knowledge of the demand distribution.

Original languageEnglish
Pages (from-to)1022-1031
Number of pages10
JournalJournal of the Operational Research Society
Volume61
Issue number6
DOIs
StatePublished - 1 Jan 2010
Externally publishedYes

Keywords

  • Behavioural operation
  • Demand distribution
  • Learning
  • Newsvendor problem
  • Purchase decision

ASJC Scopus subject areas

  • Management Information Systems
  • Strategy and Management
  • Management Science and Operations Research
  • Marketing

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