an:07027822
Zbl 1409.90024
Shen, Yuwei; Zhao, Xiaobo; Xie, Jinxing
Revisiting prospect theory and the newsvendor problem
EN
Oper. Res. Lett. 45, No. 6, 647-651 (2017).
0167-6377
2017
j
90B05 90B50
prospect theory; newsvendor; pull-to-center effect; reference point
Summary: Many experimental studies have demonstrated that human decision-makers exhibit the pull-to-center effect in newsvendor decision. It has been shown in the literature that prospect theory with a decision-dependent reference point can predict the pull-to-center effect for the newsvendor problem by assuming a uniform distribution of demand. In this paper, we prove this result for a general case: prospect theory with a decision-independent reference point can predict the pull-to-center effect for the newsvendor problem with a general distribution of demand.